Charitable Remainder Trust

What is a charitable remainder trust? 

A charitable remainder trust (CRT) is a type of irrevocable trust that allows an individual (the grantor) to transfer assets to one or more charitable organizations while retaining a stream of income for their family or themselves for the trust’s specified time period. When the trust term ends or the last income beneficiary dies, the remaining assets in the trust are given to the designated charity or charities. 

Benefits of a charitable remainder trust

• Income tax deduction: CRTs may allow you a partial charitable deduction based on the value of the charitable interest in the trust
• Predictable income: A CRT provides a predictable income for a person and/or their family for life or a specific time period
• Defer taxes: A CRT can allow an individual to defer income taxes on the sale of assets transferred into the trust

Types of charitable remainder trusts

There are two types of CRTs that differ in how they pay beneficiaries: 

• Charitable remainder annuity trust (CRAT): A CRAT pays a fixed annual income to its beneficiaries, which is set at the time the trust is created. The amount can be no less than 5% and no more than 50% of the value of the property in the trust when the trust is established. 
• Charitable remainder unitrust (CRUT): Unlike a CRAT’s fixed income, a CRUT pays a percentage of the trust’s value annually to the noncharitable beneficiaries. This means if the trust’s assets increase or decrease in value, the amount paid to the beneficiaries will fluctuate accordingly. The amount paid to beneficiaries must be at least 5% and no more than 50% of the fair market value of the assets, valued annually.