CHARITABLE REMAINDER TRUST
Definition of a Charitable Remainder Trust
A charitable remainder trust allows a donor to irrevocably transfer assets into a trust. The trust pays income to the donor or other beneficiaries during their lifetimes, and the remainder goes to a qualified nonprofit.
Charitable remainder trusts may be established during a donor's lifetime or at death. The donor usually names a bank or trust company to serve as trustee of the trust.
There are two types of Charitable Remainder Trusts:
1. Annuity Trust
With an Annuity Trust the donor receives a fixed income and he/she cannot make additional contributions to the trust.
An annuity trust is a special type of Charitable Remainder Trust (CRT) under which a designated beneficiary (cannot be a charitable beneficiary) receives an annual fixed income. The grantor of the trust is allowed an income tax deduction of the amount of the present value of the charity's remainder interest as of the date the asset(s) is contributed to the trust. If trust income proves to be inadequate to meet the required payments to the beneficiary, the selling-off of a portion of the trust's principal or capital gains earned by the trust may be used to make up the difference. Any excess amount of income generated by the trust above that required to pay the beneficiary is reinvested into the trust. Once this trust has been created, additional assets cannot be transferred into the trust.
2. Unitrust
This type of trust is flexible in that the donor can make additional contributions to the trust and the payments to the donor can vary.
A Unitrust is a type of trust in which a certain percentage of annually assessed fair market value of trust property is paid to the trust's beneficiary. Not to be confused with unit trust.
Benefits
• Quarterly income for life; support for your spouse or other beneficiaries
• Potential for growth of income over time
• Investment diversification
• No capital gains tax on gifts of appreciated assets
• Charitable income tax deduction
• Gift and estate tax savings
• Significant future support for the charity