CFP

Charitable Transfers - Charitable Remainder Trusts

Charitable Remainder Trusts
Charitable remainder trusts allows a donor to make an arrangement to provide an income interest to a non-charitable beneficiary with the remainder of the trust going to a charitable organization. Let's take a look at the two types: the CRAT and the CRUT.

UniTrusts
A charitable remainder unitrust (CRUT) is a charitable trust that can be funded with multiple deposits with the intent to provide variable annual income streams to a non-charitable beneficiary. The CRUT must pay at least 5% of the corpus each year, but the donor can set a higher percent payout less than 50% when the CRUT is drafted. The CRUT value is re-evaluated each year and the new income stream for the year is determined based on the new trust value.

Characteristics of a CRUT:

  • Variable annuity stream to the donor, fixed percentage.
  • Multiple deposits are allowed.
  • Term of the trust must be a life annuity or period certain (20 years or less).
  • Payout must be at least 5% to a maximum of 50% of initial fair market value (FMV).
  • Payment is re-calculated each year based on the FMV of the CRUT.
  • At the end of the term, remainder interest is paid to the charitable beneficiary.
  • The donor receives an income tax deduction from the present value of the remainder interest.
Annuity Trusts
A charitable remainder annuity trust (CRAT) is a trust that is funded with an initial charitable contribution to provide income to a non-charitable beneficiary. A CRAT pays a fixed annual annuity stream of income (at least 5% but not exceeding 50%) to the income beneficiary for a lifetime or a fixed number of years (cannot be more than 20 years). At the end of the payment term, the remainder in the trust goes to the charity.

Characteristics of a CRAT:

  • Fixed annuity stream to the donor, fixed percentage.
  • Initial deposit is only allowed.
  • Term of the trust must be a lifetime or period certain (20 years or less).
  • Payout must be at least 5% of the initial FMV to a max of 50%.
  • At the end of the term, remainder interest is paid to the charitable beneficiary.
  • The donor receives an income tax deduction from the present value of the remainder interest.



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