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Charitable Remainder Trust

One type of charitable trust is a charitable remainder trust (“CRT”). A CRT is a type of trust that pays back to you, or pays to your family members, a certain amount per year. At the end of the term of the trust (up to 20 years, or at your death if the trust lasts for your lifetime), the remaining assets of the trust are distributed to charity. If you establish this type of trust during your lifetime, an income tax deduction and a gift tax deduction is available for the present value of what charity is expected to one day receive. If you establish this type of trust at death, then an estate tax deduction is available for the present value of what charity is expected to one day receive. The structure of the charitable remainder trust determines the amount of the appropriate income tax, gift tax, or estate tax charitable deduction.

There are two ways to structure the amount you receive back from the trust each year. With an annuity trust you (or your family members) will receive back a set amount per year during the term of the trust. Another way to express this is that the recipient will receive a percentage of the trust assets measured by the initial principal contribution only. Alternatively, with a unitrust, you (or your family members) will receive back a percentage of the trust assets as measured each year. With a unitrust, the amount the recipient receives back out of the trust will vary each year (and increases or decreases with time, if the amount in the trust increases or decreases).

If you have charitable giving goals, it can make sense to contribute appreciating assets to a CRT. This is because after a sale, the CRT allows the capital gains tax to be spread out over a number of years.

In your estate planning documents, it also is possible to leave at your death part of your assets to a charitable lead trust, and part to a charitable remainder trust. The structure of each can

be determined by a formula intended to reduce estate tax to near zero. If you would like us to run examples of how this works, let me know.

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