Charitable Remainder Trust (CRT)
A Charitable Remainder Trust (CRT) is an irrevocable trust that provides income to one or more beneficiaries for a defined period, which can be a specific number of years (not exceeding 20) or the remainder of the grantor’s life. After this period, the remaining trust assets are transferred to a designated charity. The main advantages of a CRT include potential income tax deductions, avoidance of capital gains taxes, and favorable estate tax treatment.
Types of CRTs
- Charitable Remainder Annuity Trust (CRAT): Pays a fixed annuity amount annually, which is set during the establishment of the trust and does not change thereafter.
- Charitable Remainder Unitrust (CRUT): Pays a fixed percentage of the trust’s value, as determined annually, providing a variable payment that can increase if the trust assets grow.
Examples
- Example 1: A wealthy individual sets up a $1 million CRUT, specifying an annual payout of 5% of the trust’s value to themselves for life. Each year, they receive 5% of the current value of the trust. Upon their death, the remaining assets are donated to their chosen charity.
- Example 2: A couple without children but significant assets creates a $500,000 CRAT. They receive a fixed $25,000 annual payment. Upon their death, the remaining balance of the trust is passed to a charitable organization, receiving a sizeable tax deduction upfront.
Frequently Asked Questions (FAQs)
Q1: How does one set up a Charitable Remainder Trust? A1: Setting up a CRT involves drafting trust documents with the assistance of estate planning or tax professionals, specifying beneficiaries, payout terms, and the remainder charitable beneficiary.
Q2: What are the tax benefits of a CRT? A2: Donors receive an immediate income tax deduction based on the present value of the remainder interest that will ultimately go to charity, avoid capital gains taxes on assets contributed to the trust, and potentially reduce estate taxes.
Q3: Can a donor change the charitable beneficiary of a CRT? A3: In many cases, the donor can retain the right to change the charitable remainder beneficiary, provided this flexibility is outlined in the trust document.
Q4: Can beneficiaries be someone other than the grantor? A4: Yes, beneficiaries can include the grantor, the grantor’s spouse, children, or other individuals.
Q5: How is the trust value determined for a CRUT? A5: The CRUT value is appraised annually, and the payout percentage is applied to this updated value to determine the income distribution.
Related Terms
- Irrevocable Trust: A trust that cannot be modified or terminated without the beneficiary’s permission. CRTs are by definition irrevocable.
- Gift Annuities: Another form of planned giving where the donor makes a substantial gift to a charity and, in return, receives a fixed annual payment for life.
- Charitable Lead Trust (CLT): The converse of a CRT, this trust pays income to a charity for a specified term before transferring the remaining assets to non-charitable beneficiaries.
Online References
- IRS Charitable Remainder Trusts
- American College of Trust and Estate Counsel (ACTEC)
- Charity Navigator Planned Giving
Suggested Books
- “Effective Use of Charitable Remainder Trusts” by Steve Leimberg
- “Charitable Giving Answer Book” by Catherine W. Wilkinson and Stephen L. Glazier
- “Planned Giving: A Guide to Fundraising and Philanthropy” by Ronald R. Jordan and Katelyn L. Quynn
Fundamentals of Charitable Remainder Trust: Estate Planning Basics Quiz
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