A charitable remainder trust (CRT) is a type of trust that allows you to contribute to a charitable cause while receiving a financial benefit. When you create a CRT, you transfer assets—such as cash, stocks, or property—into the trust. These assets are then invested, and the trust pays you or another designated beneficiary a steady income for a specified period, which could be for life or a certain number of years. At the end of the trust term, the remaining assets in the trust go to one or more charities that you have chosen.
This arrangement allows you to manage your financial future and support meaningful causes you are passionate about. Setting up a CRT can also provide significant tax advantages. An estate planning attorney can help you create a CRT that supports causes close to your heart and protects your assets during your lifetime.
Types of Charitable Remainder Trusts
There are two primary types of charitable remainder trusts: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). A CRAT offers a fixed annual payout set at the inception of the trust. This type is suitable for those who need consistent, predictable income each year. On the other hand, a CRUT provides a payout that is a fixed percentage of the trust’s balance, recalculated annually. This means the income from a CRUT could vary each year based on the performance of the trust assets. Choosing between a CRAT and a CRUT requires a careful evaluation of your financial needs and risk tolerance.
Setting Up a Charitable Remainder Trust
The first step in setting up a charitable remainder trust involves selecting which assets to place in the trust. These can include cash, stocks, real estate, or other valuable assets. Next, you must decide who will receive the income from the trust. This could be you, your spouse, or another beneficiary. These income distributions can last for life or a specified number of years. You’ll also need to select a charity or charities that will receive the remainder of the trust assets after the income payment period ends.
It’s best to work with a legal professional to ensure that your trust is set up correctly and meets all legal requirements. A lawyer can draft the trust agreement and guide you through the process of registering the trust and transferring assets into it so the trust operates as intended.
Tax Benefits of Charitable Remainder Trusts
In addition to their philanthropic benefits, charitable remainder trusts are attractive for several tax reasons. First, when you transfer assets into a CRT, you can claim an immediate income tax deduction. The amount of this deduction is based on the total value of the assets you transfer, the income payment rate, and the expected term of the trust. The deduction is calculated using IRS formulas that factor in the present value of the amount expected to be left to charity.
Additionally, the assets in a CRT can grow free of tax, which can significantly increase the amount available for payouts to beneficiaries and, ultimately, to the charity. Furthermore, by transferring assets out of your estate into a CRT, you can reduce estate taxes upon your death, as these assets are no longer part of your taxable estate.
Contact an Estate Planning Lawyer Now
If you’re considering setting up a charitable remainder trust and would like help exploring your options, contact Jones Gregg Creehan & Gerace for an initial consultation. Our team is here to assist you with the estate planning process and answer any questions you might have about creating a trust that meets your financial and charitable goals.