ESTATE PLANNING
Understanding Charitable Remainder Trusts
Balancing Your Philanthropic Goals With Your Financial Future
Deciding ways to distribute your wealth is a deeply personal choice that impacts both your legacy and your loved ones. Charitable Remainder Trusts (CRTs) can be a great option for philanthropically minded individuals seeking to balance their financial needs with their desire to support meaningful causes. Learn how CRTs work and discover whether this strategy fits your long-term estate planning goals.
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What Is a Charitable Remainder Trust?
A Charitable Remainder Trust is an irrevocable trust that provides for both charitable and non-charitable beneficiaries. It allows you to place assets into a trust that pays an income stream to you or your designated beneficiaries for your lifetime, the lifetime of a survivor beneficiary or a specified term of years. At the end of that term, the remaining assets are distributed to the qualified charitable organizations you have selected.
This dual-purpose trust allows you to transform appreciated assets into a stream of income while creating a lasting impact on the charities you care about.
Benefits of a Charitable Remainder Trust
When properly structured, a CRT can be a powerful tool in your estate plan. It offers several potential advantages:
Income Through Retirement: You can secure a steady stream of income for yourself, your spouse or other beneficiaries for a lifetime or a specific term of years (up to 20).
Income Tax Deductions: You may be eligible for an immediate income tax deduction based on the present value of the remainder interest that will eventually pass to charity. The amount of any deduction is subject to IRS rules, valuation assumptions and individual tax circumstances.
Capital Gains Tax Deferral: By funding a CRT with highly appreciated assets, you can potentially sell those assets without immediate capital gains tax at the trust level, allowing the full value of the assets to be reinvested to generate income rather than being reduced by capital gains taxes immediately upon sale.
Estate Tax Reduction: Assets transferred to the trust are generally removed from your taxable estate, potentially reducing estate tax liability for your heirs.
While we don’t give tax advice, we can partner directly with your CPA or tax professional. This collaborative approach helps ensure your estate planning strategy is implemented with precision.
Types of Charitable Remainder Trusts
There are two primary ways to structure a CRT, depending on your income needs and financial goals.
1
Charitable Remainder Annuity Trust (CRAT)
A CRAT provides a fixed dollar amount of income each year. This amount is determined when the trust is established and does not change, regardless of how the trust's investments perform.
Best for: Individuals seeking predictable, consistent income who do not want their payments to fluctuate with market conditions.
Note: You cannot make additional contributions to a CRAT after it is initially funded.
2
Charitable Remainder Unitrust (CRUT)
A CRUT pays a fixed percentage of the trust's value, revalued annually. This means your income payments may increase if the trust's investments grow or decrease if the value declines.
Best for: Individuals who want their income potential to keep pace with inflation or who wish to make additional contributions to the trust over time.
Note: Advanced options like the “Flip CRUT” or “Net Income with Makeup Charitable Remainder Trust” (NIMCRUT) offer flexibility for illiquid assets like real estate.
Frequently Asked Questions
What assets can I use to fund a Charitable Remainder Trust?
Is a Charitable Remainder Trust revocable?
How is the income from a CRT taxed?
Can I choose any charity as the beneficiary?
What happens if I pass away before the trust term ends?
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