A Brief Introduction to the Charitable Remainder Trust

Since 1969, many people have used charitable remainder trusts, or CRTs, to maximize their incomes, minimize taxes, and support charities that have special meaning for them. At one time, they were regarded as simply another medium for the wealthy to make large donations. Nowadays, people with modest estates also use them to donate small amounts of money and benefit from these donations.

How CRTs Work

You transfer an appreciated asset, such as stocks or real estate, into an irrevocable trust, which in most instances will practically remove the asset from your estate. The party you appoint to manage the trust then sells it without having to pay a capital gains tax, and re-invests the money in assets that generate an income for the rest of your life. This income can be based on either a percentage or a dollar amount indicated in the trust. When you pass away, the remaining assets in the charitable remainder trust go to the charity you have chosen, hence the name.

Advantages of a CRT include:

  • You receive a charitable income tax deduction for the assets you donated
  • No capital gains taxes are paid on those assets
  • The assets are not subject to federal estate taxes, as they are technically no longer part of your estate

The two primary types of charitable remainder trusts are explained below.

Charitable Remainder Annuity Trust

An annuity trust pays a set income amount to the donor every year. If, for example, you decide you want to receive $100,000 per year from the trust, you will receive that exact amount even when it does not earn that much from its investments. When this happens, your payments will be taken out of the trust’s principal. The amount of income you opt for must be at least 5% of the trust’s initial value, and may not exceed 50%. The value of the remainder amount ultimately received by the charity must be at least 10% of the trust’s initial value.

Charitable Remainder Unitrust

A unitrust provides you with an income that represents a fixed percentage of the donated assets. Each year their value is recalculated to determine how much will be paid to you, which means that payment amounts will vary from one year to the next. The percentage can be anywhere between 5% and 50% of the principal and, like annuity trusts, the value of the remainder amount must be at least 10% of the unitrust original value.

A properly drafted and administered charitable remainder trust gives you the opportunity to benefit both a favorite charity and your beneficiaries. For assistance in creating such a positive and beneficial legacy, contact Kevin Forrester Law today.

Share this on...Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someone