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.



Charitable Lead Trusts

Related Articles
  1. Retirement

    Guiding Clients on Charitable Remainder Trusts

    Clients who wish to make donations to charity can reap an enormous tax deduction with charitable remainder trusts, but it must be set up correctly.
  2. Managing Wealth

    Why You Should Set Up a Charitable Trust Now

    Now may be the best time to set up a charitable trust. Here's why.
  3. Managing Wealth

    The Best Charitable Remainder Trust for You

    Help a favorite cause and avoid a tax bite: These are the key reasons to set up a CRT. But which version best fits your needs?
  4. Investing

    Putting Your Money to Work for the Greater Good

    There are several ways to put your capital to work for social or charitable causes, while also facilitating moves that support your personal finance goals.
  5. Financial Advisor

    Incentive Trusts: How to Avoid the Pitfalls

    Incentive trusts can motivate beneficiaries to accomplish constructive goals, but they can also end up creating dilemmas.
  6. Financial Advisor

    When to Trust a Revocable Trust

    Unsure of how your assets will be dispersed once you're gone? Here's how setting up a revocable trust while you're here can be a big benefit.
  7. Managing Wealth

    Surprising Ways a Trust Could Help Your Family

    Everything you always wanted to know about setting up trusts, in handy glossary form.
  8. Managing Wealth

    Pick The Perfect Trust

    Trusts are an estate plan's anchor, but the terminology can be confusing. We cut through the clutter.
  9. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  10. Financial Advisor

    Charitable Giving: How to Help Clients Do More

    The use of donor-advised funds is on the rise, but advisors could be doing more to engage their philanthropic clients. Here are some talking points.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center