Charitable Remainder Trusts (CRTs) allow you to donate property and assets to a trust with the ultimate beneficiary as a charity, yet maintain an income stream from the trust for a specified term or your lifetime. The grantor or donor receives a current income tax deduction, which is equivalent to the present value of the remainder interest that will be transferred to the charity at the end of the term. There are two types of Charitable Remainder Trusts: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). The principal difference between a CRAT and a CRUT are the payments from the trust. A CRAT pays a fixed dollar amount at least annually to the income beneficiaries, based on the assets that are initially transferred to the trust. A CRUT pays a fixed percentage rate, varying the payout from year to year because it is based on annual fluctuations in the value of the trust’s property.
A Charitable Remainder Trust is particularly beneficial when transferring highly appreciated property. The trust can sell the donated property without paying capital gains tax and invest the proceeds in an income producing diversified portfolio. You will receive income at least annually and at the end of the specified term the charity receives the remaining balance in the trust. You obtain a current income tax deduction based on the present value of the charity’s future interest. The term of the trust can be for a number of years (not to exceed 20 years), the life of the donor, or the lives of the donor and/or other income beneficiaries (generally the spouse). Charitable Remainder Trusts are often combined with an Irrevocable Life Insurance Trust (ILIT) to replace the value of the assets transferred to the trust.