What is a Charitable Remainder Trust?

A charitable remainder trust (“CRT”) is a tax-exempt irrevocable trust that generates potential income to the donor, or other beneficiaries to the trust, the remainder would be donated to a designated, qualifying charity. The CRT can be a powerful tool for strategic giving. The CRT must be a written instrument and establish both (1) noncharitable annuity interest (may be fixed or variable) for the life of one or more individuals or for a term of not more than twenty years, and (2) a remainder interest passing to the qualifying charity.

The primary advantage of this form of trust is that the grantor can receive both income tax deductions and gift tax deductions when they have given a family member an annuity or unitrust interest in the CRT. Further, because a CRT is exempt from federal and state income taxes, the trust can convert appreciated property and securities into an annual payout, untouched by income taxes. This form of trust encourages property with high rates of appreciation so the non charitable beneficiaries essentially receive a continuously expanding amount of money as the value of the trust grows. In terms of flexibility, a grantor may reserve the right to switch the charitable beneficiaries if they so desire, with no penalty so long as the new charitable beneficiary is a qualifying charity.

Another strategy that the CRT makes available is the investment in tax-exempt bonds, which may allow the non charitable beneficiary to receive a tax-exempt payout or a portion of the payout as tax-exempt. For more information or help utilizing this device contact us at The Center for Financial, Legal and Tax Planning (618) 997-3436.