You may be motivated to help those who are not as fortunate. You may want to help your local community, protect the environment, or support your local church. There are countless organizations and groups that can benefit from your gift. Trusts can be leveraged so you can give back to your selected charity while also providing some benefits to your heirs.

What is a charitable remainder trust?

A charitable remainder trust is a “split-interest” gift giving donors the opportunity to remember a favorite charity without sacrificing needed income.

With this arrangement, the donor or another selected individual receives income from the trust, with the trust assets – the remainder – ultimately distributed to a selected charity. The charity’s remainder interest must be at least 10% of the value of the trust. The distributions from the trust to a non-charitable beneficiary may last for a term of up to 20 years, or for the donor’s or other beneficiary’s lifetime. The trust must make income payouts at least annually, and when the trust expires, the named charity receives the trust principal.  The trust can pay out income for more than one life, provided the 10 percent test is satisfied.

What are the types of charitable remainder trusts?

Charitable remainder trusts are irrevocable and come in two basic forms: The charitable remainder annuity trust (CRAT) and charitable remainder unitrust (CRUT).

The charitable remainder annuity trust pays out a fixed percentage (percentage may change depending on current tax laws) – must pay at least five percent – of the initial value of the trust assets. The donor cannot make additional contributions to a CRAT after the initial contribution.

The charitable remainder unitrust also provides a fixed percentage of the trust’s value, but the payout is recalculated every year as a percentage of the value of the trust assets at that time. The donor selects the payout rate, which must be at least five percent but cannot be greater than 50 percent, when creating the trust.  The donor can make additional gifts to a CRUT at any time.

If you are considering funding a Charitable Trust, our financial professionals will work with you and your tax and legal advisors as needed.

The information provided is not written or intended as specific tax or legal advice and may not be relied upon for purposes of avoiding any federal tax penalties. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.