Charitable Remainder Trust (CRT)
I.R.C. § 170(A), § 170 (C)
What is a Charitable Remainder Trust (CRT)?
A Charitable Remainder Trust (CRT) is an irrevocable trust that produces a potential income stream for you, as the CRT’s donor, or other beneficiaries, with the remainder of the assets going to your chosen charity or charities.
This charitable giving strategy builds income and allows you to pursue your philanthropic endeavors while simultaneously providing for your living necessities. Charitable trusts can provide you with flexibility and some control over your intended charitable beneficiaries, as well as lifetime income, which can aid in retirement, estate planning, and tax management.
There are two primary types of Charitable Remainder Trusts (CRTs):
- Charitable Remainder Annuity Trusts (CRATs): These trusts pay out a set annuity each year.
- Charitable Remainder Unitrusts (CRUTs): These trusts distribute a preset yearly percentage depending on the trust assets’ balance (CRATs do not allow for extra donations, but CRUTs do).
Make a partially tax-deductible donation: Donate cash, stocks, or non-publicly traded assets like real estate, private business interests, or private company shares to qualify for a tax benefit. The partial income tax deduction is determined by the kind of trust, the period of the trust, the expected income payments, and IRS interest rates that presume a particular rate of trust asset development.
You or your chosen beneficiaries receive an income stream: You or your indicated beneficiaries may obtain income on an annual, semi-annual, quarterly, or monthly basis depending on how the trust is set up. According to the IRS, the yearly annuity must be at least 5% of the trust’s assets but no more than 50%.
The leftover CRT assets are transferred to the selected charitable recipients after the time limit given, or the death of the final income beneficiary: When the CRT expires, the residual assets will be given to the charity recipient, which might be public charities or private foundations. Depending on how the CRT is structured, the trustee may have the authority to modify the CRT’s charity beneficiary over the trust’s existence.
What assets may be donated to a Charitable Remainder Trust?
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 Charitable Remainder Trust (CRT) may be a viable option if you want an immediate charitable deduction and need an income stream for yourself or another individual. It is also a viable option if you want to establish a trust in your will to provide for your successors, with the remainder going to your favorite charities. There are numerous vehicles for charitable giving from which to choose.