In 1969, the United States Congress formed a trust vehicle that allowed a donor to direct some of his or her assets to a qualified charity or not-for-profit organization in return for noteworthy benefits. This trust is known as a Charitable Remainder Trust (CRT.)
A CRT is a split income trust. It CRT pays out income to one or more non-charitable beneficiaries, including the Donor, if directed, for life (or lives) or a term not to exceed 20 years. At the end of the Trust term, what remains in the CRT is distributed to a charity or charities selected by the Donor.
The Donor is entitled to income, as well as estate and gift tax deductions for contributions to the CRT. A CRT also allows a Donor to place a highly appreciated asset into the CRT, sell the asset tax-free, and reinvest the proceeds in a high income producing asset that enhances the income stream for the Donor or a loved one. Additionally, most creditors cannot invade the CRT.
There are two basic types of CRTs. The first type is a Charitable Remainder Annuity Trust (CRAT.) It pays an annuity to the income beneficiary at a selected payout rate that is a percentage of the assets valued at the time of the CRAT creation. The second type is a Charitable Remainder Unitrust (CRUT.) The CRUT pays a percentage of the annual value of the Trust assets, a unitrust amount, to the income beneficiary.
Charitable Remainder Trusts are valuable tools for those seeking to provide for charities while receiving income as well as estate and gift tax deductions. As such, a CRT should not be overlooked when reviewing your estate plan.
Todd C. Ratner, Esq.