Charitable Remainder Trust (CRT)
What is a Charitable Remainder Trust (CRT)?
A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity. This is a “split interest” giving vehicle that allows a trustor to make contributions, be eligible for a partial tax deduction, and donate remaining assets.
Two main types of charitable remainder trusts include:
- Charitable remainder annuity trusts (CRATs) that distribute a fixed annuity each year
- Charitable remainder unitrusts (CRUTs) that distribute a fixed annual percentage based on the balance of the trust assets (CRATs do not allow for additional contributions, while CRUTs do permit this.)
- Make a partially tax-deductible donationDonate money, shares or non publicly traded assets such as real estate, private
business interests, and private corporate stock and qualify for a partial tax deduction.
- You or your chosen beneficiaries receive an income streamBased on how you set up the trust, you or your stated beneficiaries can receive income on an annual, semi-annual, quarterly or monthly basis based on how you set up the trust. According to the IRS, the annual annuity must be at least 5%, but not more than 50% of the assets of the trust.
- After the specified timespan or the death of the last income beneficiary, the remaining CRT assets are distributed to the designated charitable beneficiariesThe remaining CRT assets will be distributed to the charitable beneficiary when the CRT terminates, which may be public charities or private foundations. Depending on how the CRT is set up, the trustee may have the power to change the CRT’s charitable beneficiary during the lifetime of the trust.
What assets may be donated to a CRT?
You may use the following types of assets to fund a charitable remainder trust:
- Publicly traded securities
- Some types of closely held stock (Note that CRTs cannot hold S-Corp stock)
- Real estate
- Certain other complex assets
Is a charitable remainder trust right for me?
The CRT may be a good option if you want an immediate charitable deduction, but also have a need for an income stream to yourself or another person. It also may be a good option if you want to establish one by will to provide for heirs, with the remainder going to charities of your choosing. There are a variety of charitable giving vehicles from which to choose.