What is a Charitable Remainder Trust?

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Charitable Remainder Trust Is Good for Split Interests

A charitable remainder trust (CRT) is an irrevocable trust that generates a potential income stream for you, as the donor to the CRT, or other beneficiaries, with the remainder of the donated assets going to your favorite charity or charities. This charitable giving strategy generates income and can enable you to pursue your philanthropic goals while also helping provide for living expenses. Charitable trusts can offer flexibility and some control over your intended charitable beneficiaries as well as lifetime income, thereby helping with retirement, estate planning and tax management.

A charitable remainder trust (CRT) is a trust that includes two separate and distinct “beneficial interests,” also known as “split interests.” This means that two different entities have an interest in the assets of the trust. These two interests are the “income interest” (income stream beneficiary) and the “remainder interest” (beneficiary of whatever assets remain at the termination of the trust). In a CRT, a non-charitable (family) beneficiary receives the income interest, and a charitable beneficiary receives the remainder interest. 

A properly drafted CRT can allow the creator of the trust to take a federal income tax deduction, as well as provide an income stream for life.

How a charitable remainder trust works

A charitable remainder trust is a “split interest” giving vehicle that allows you to make contributions to the trust and be eligible for a partial tax deduction, based on the CRT’s assets that will pass to charitable beneficiaries. You can name yourself or someone else to receive a potential income stream for a term of years, no more than 20, or for the life of one or more non-charitable beneficiaries, and then name one or more charities to receive the remainder of the donated assets.

There are two main types of charitable remainder trusts:

  • Charitable remainder annuity trusts (CRATs) distribute a fixed annuity amount each year, and additional contributions are not allowed.
  • Charitable remainder unitrusts (CRUTs) distribute a fixed percentage based on the balance of the trust assets (revalued annually), and additional contributions can be made.

Contributions to CRATs and CRUTs are an irrevocable transfer of cash or property and both are required to distribute a portion of income or principal, to either the donor or another beneficiary. At the end of the specified lifetime or term for the income interest, the remaining trust assets are distributed to one or more charitable remainder beneficiaries.