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:
- Donor gifts cash or property to CRT.
- Donor receives income stream for life.
- Donor receives income tax deduction.
- Remainder to charity or charities (10%)
Charitable Remainder Annuity Trust (CRAT)
- Fixed dollar amount equal to 5-50% of initial fair market value of trust
- Once funded, no additional contributions
Charitable Remainder Unitrust (CRUT)
- Fixed percentage between 5-50% of trust assets as redetermined each year
- Additional contributions are permitted
- FMV = $850,000
- Basis = $280,000
- Capital gains @ 15%
- Current return = 3%
- Portfolio return = 6%
- Income = $70,000
- Federal tax @ 25%
- State tax @ 4%
- Donor ages = 65, 62
- Unitrust @ 6%
Cash Flow Comparison
|Keep Asset||Sell Asset||Gift Asset|
|Cash flow (15 years)||$271,575.00||$447,825.00||$748,444.00|
|Increase in cash flow||—||$176,250.00||$476,869.00|