Charitable Remainder Trusts

Charitable remainder trusts (CRTs) are irrevocable trust agreements that split an interest between charitable and non-charitable beneficiaries. The person who creates the CRT (“the donor”) puts one or more appreciated assets into a trust that can sell the asset(s) without paying capital gains tax. The entire proceeds are reinvested and grow tax deferred. The trust pays the non-charitable beneficiaries (usually, but not always, the donor or the donor and spouse) an income stream for life or for a fixed number of years (up to 20). The donor also receives an immediate income tax deduction, which can be carried forward for 5 years. When the donor dies, or the term expires, any assets remaining in the trust are distributed to one or more charities selected by the donor.

 

General Concept of a CRT:

  1. Donor gifts cash or property to CRT.
  2. Donor receives income stream for life.
  3. Donor receives income tax deduction.
  4. Remainder to charity or charities (10%)

 

Charitable Remainder Annuity Trust (CRAT)

  1. Fixed dollar amount equal to 5-50% of initial fair market value of trust
  2. Once funded, no additional contributions

 

Charitable Remainder Unitrust (CRUT)

  1. Fixed percentage between 5-50% of trust assets as redetermined each year
  2. Additional contributions are permitted

 

CRUT Assumptions

 

Cash Flow Comparison

Keep Asset Sell Asset Gift Asset
Invest $850,000.00 $700,825.00 $824,500.00
Annual return $25,500.00 $42,050.00 $49,470.00
After tax $18,105.00 $29,855.00 $35,124.00
Tax deduction $221,584.00
Cash flow (15 years) $271,575.00 $447,825.00 $748,444.00
Increase in cash flow $176,250.00 $476,869.00