A charitable remainder trust, also called a CRT, is a type of irrevocable trust used in estate planning. It allows the grantor or the grantorís designated income beneficiaries to receive income for life, or for a period of years, from appreciated property donated to a charitable organization. Upon the death of the grantor or termination of the trust, the charity keeps the property, called the remainder.
If you have no children, siblings, parents or other heirs to whom you wish to leave your estate and need to receive an income from your property while you are alive, a charitable remainder trust may be the right form of trust for your estate plan.
Property Used to Fund a CRT
One of the most common questions about making a charitable remainder trust is what type of property should be used to fund the trust. The greatest advantage can be gained from a CRT when it is funded with a highly appreciated asset, such as appreciated stock in which you have a low cost basis. However, you can also fund this type of trust with cash, other types of securities, or real estate. Related: How to Gift Stock to Children.
Charitable Remainder Trust Guide
A charitable remainder trust is a complex legal document. Whether you are going to make a charitable remainder trust as part of your estate plan or are drafting the trust document, you may need to refer to a reference guide that specifically addresses CRTs. Harnessing the Power of the Charitable Remainder Trust by Marc Hoffman is a comprehensive guide to charitable remainder trusts. It provides detailed information on all the essential issues involved in this method of planned giving including converting appreciated assets to income, selecting the annuity rate or payment rate, charitable deductions, gift taxes, estate taxes, selecting a trustee, valuation and appraisal requirements, and tax return requirements. See 2020 Gifting Limits. Information on permissible charitable remaindermen is included.If you want to know what types of property may be used to fund a charitable remainder trust, Harnessing the Power of the Charitable Remainder Trust by Marc Hoffman provides a list of suitable gift assets along with an analysis of how these assets work in the context of the trust. It provides extensive information on the laws and regulations applicable to charitable remainder trusts, including IRS rulings and code sections. Relevant tax forms are also discussed. For more, go to
gifts and gifting.
How to Use a Charitable Remainder Trust
There are different types of charitable remainder trusts. The provisions of a charitable remainder trust or CRT will vary depending on the grantorís estate planning objectives. To establish a CRT, the grantor must first choose a qualified charitable entity to receive the gift. When the trust is created, a trustee is appointed to manage the trust. The grantor transfers property to the trust. The charitable organization often serves as the trustee. The trustee may sell the donated property and reinvest it in other income-producing investments. The trust agreement requires the trustee to pay the grantor or his designated income beneficiaries a percentage of the trust assets for life or a term of years. When the trust ends or the grantor dies, the principal in the trust passes to the charity.
Advantages of Charitable Remainder Trust
1. You pay no capital gains taxes on appreciated property you donate to the trust. 2. The property donated to the trust can be sold and reinvested in a higher yielding, more diversified portfolio. 3. You or your designated income beneficiaries receive a stable income from the trust for life or a period of years. 4. You receive an immediate income tax deduction for a portion of the value of the property donated to charity. 5. The assets placed in trust pass directly to the charitable organization upon your death and avoid probate. 6. By removing the donated property from your estate, you may reduce or eliminate estate taxes.
While a charitable remainder trust offers many advantages, there may be other types of trusts more suitable for your estate planning objectives. Consult an attorney about your unique circumstances.
Planning Tips for CRT's
The charity that receives property in a charitable remainder trust must be one approved by the IRS. This generally means the charity must be a tax exempt 501c3 organization. Many universities, hospitals, and other charitable organizations have planned giving programs that assist donors wishing to establish a this type of trust. Most brokerage firms and financial advisors have programs to assist their clients with estate planning trusts and tax saving strategies.
The use of a Charitable Remainder Trust may be coupled with an Irrevocable Life Insurance Trust as a way of replacing the value of the donated assets for the benefit of your heirs.
It is important to be aware a charitable remainder trust is irrevocable. You cannot get your property back after you transfer it to the trust. If there is any possibility you will need the property during your lifetime, you should carefully consider whether this is the right estate planning strategy for you. Discuss your income plan with a financial planner to determine whether the income from the trust will be adequate to meet your needs or those of your designated income beneficiary.
Donations to a charitable organization can have certain tax benefits but should only be made after consultation with a tax professional. This is not the type of trust you can create using a do it yourself online estate planning form. Charitable trusts are complex. You will need an estate planning attorney to draft the trust agreement and assist you with funding your trust. To learn more about tax saving strategies that may benefit your estate, see Charitable Giving.
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