Charitable remainder trusts are irrevocable structures established by a donor to provide an income stream to the income beneficiary, while the public charity or private foundation receives the remainder value when the trust terminates. With a CRT you get many benefits some of which are:
- An income tax charitable deduction
- Increased spendable income
- No capital gains tax when appreciated property is transferred to the trust
- Reduction of your taxable estate
The charitable remainder trust (CRT) has two basic categories: the charitable remainder annuity trust (CRAT) and the charitable remainder unitrust (CRUT).
A CRAT is a trust that is to pay its income beneficiary or beneficiaries a specified sum, which is not less than 5%, nor greater than 50%, of the initial net fair market value of all property placed in trust. The payments are established at the creation of the trust and remain fixed over the distribution period. Once the trust is established no further contributions may be made to the trust. The annuity trust is also subject to the 5% exhaustion test. If there is more than a 5% chance that the trust will be exhausted so that the charity will receive nothing, the creator is no longer entitled to a charitable deduction.
Charitable Remainder Trust
A CRUT has two primary characteristics: (1) Once established, the CRUT distributes a fixed percentage of the value of its assets (on an annual or more frequest basis) to a non-charitable beneficiary (usually the settlor of the trust); and (2) At the expiration of a specified time (usually the death of the settlor), the remaining balance of the CRUTs assets are distributed to charity. The trustee determines the fair market value of the CRUT’s assets at the time of contribution, and thereafter on the applicable valuation date. The fixed annuity percentage must be at least 5% and no more than 50% of the fair market value of the assets in the corpus. The remainder (the amount expected to go to charity) must be at least 10% of the fair market value of the assets contributed to the CRUT. Neither a CRAT nor a CRUT is subject to income tax, unless it has unrelated business taxable income.
For more information, please contact Brian Chew at 949-347-5256 or fill out the contact us form.