What Is a Charitable Remainder Trust?

A charitable remainder trust is a type of irrevocable trust that provides income for the donor or other beneficiary, allowing for the remaining 𓆏assets to be donated to a charity, reducing taxable income.

They are set up with a donation by the trustor (also known as “the grantor” or “the benefactor”) that provides a partial tax deduction. They then operate by dispensing income to either the trustor or one or more named noncharitable beneficiaries for a specifiꦬed period.

After this period, they donate the remainder of the trust to one or more designated charitable beneficiaries, which can be either a 澳洲幸运5开奖号码历史查询:public c🌺harity or a private fou🐽ndation.

How Does a Charitable Remainder Trust Work?

Tax Advantages

A central idea of a charitable remainder trust is to reduce taxes. This is done by first donating assets into the trust and then h🔯aving it pay one or more noncharitable beneficiaries for a stated period, which can be no longer than either 20 years or the life of one or more of the noncharitable beneficiaries.

The payments can be made annually, semiannually, qua෴rterly, or monthly. Once the time frame expires, the remainder of the estate is transferred to one or more charitable ben꧒eficiaries.

Assets that can be donated to a charitable remainder trust include cash, stocks, real estate, private business interests, and private com🗹pany stock.

The pa♈rtial tax deduction a trustor receives for their donation is based on the trust’s type and term, the projected income payments to the charitable beneficiaries, and interest rates set by the Internal Revenue Service (IRS) that are determined by assumptions about the growth rate of trust assets.

Retirement Planning and Estate Planning

In addition to tax management, charitable remainder trusts can also offer benefits for 澳洲幸运5开奖号码历史查询:retirement planning and 澳洲幸运5开奖号码历史查询:estate planning.

Charitable remainder tru꧃sts are irrevocable, which means that they cannot be modified or terminated without the charitable beneficiaries’ permission. The trustor, having transferred assets into the trust, effectively removes all of their rights of ownership of the assets and the trust upon the creation of its irrevocable status.

By making a trust irrevocable, the trustor is removing it from inclusion in their estate, meaning that it will not be part of the probate process, is not subject to 澳洲幸运5开奖号码历史查询:estate taxes, and can transfer to a beneficiary immediately.

In contrast, a 澳洲幸运5开奖号码历史查询:revocable trust, which allo🌌ws the trustor to make modifications to the trust over the years or end it entirely, is considered a part of the trustor’s estate and will be subject to both probate and estate taxes.

The Secure 2.0 Act, part of the Consolidated Appropriations Act of 2023, which was signed into law by President Biden on Dec. 29, 2022, includes special provisions for making a one-time qualified charitable distribution from an IRA of no more than $50,000 to a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT).

This provision of the Secure Act 2.0 also applies to 澳洲幸运5开奖号码历史查询:charitable gift annuities (CGAs). Special rules apply to these donations so get advice from a tax expert.

Types of Charitable Remainder Trusts

There are two main types of charitable remainder trusts, distinguished in part by whether ꦬthey pay a fiꦓxed or fluctuating annual amount to the noncharitable beneficiaries.

Charitable Remainder Annuity Trust (CRAT)

澳洲幸运5开奖号码历史查询:Charitable remainder annuity trusts (CRATs) distribute a fixed annuity each year to their noncharitable beneficiaries. This amount is always the same and must be at least 5% but no more than 50% of the assets in the trust. They do not allow for additional contributions.

Charitable Remainder Unitrust (CRUT)

澳洲幸运5开奖号码历史查询:Charitable remainder unitrusts (CRUTs) distribute a fixed percentage based on the balance of the trust assets, which are revalued every year. The annual amount will fluctuate, but, as with CRATs, it must be at least 5% but no more than 50% of the assets in the trust. Unlike a CRAT, though, a CRUT does allow for additional contributions.

Advantages and Disadvantages of Charitable ❀ꦅRemainder Trusts

Advantages

The biggest advantage of a charitable remainder trust is its tax savings. The trustor not only gets a partial tax deduction for their donation to the trust; they also can see a reduction in 澳洲幸运5开奖号码历史查询:capital gains, gift, and estate taxes.

Another advantage is that unlike with a 澳洲幸运5开奖号码历史查询:charitable lead trust, a trustor or their designated noncharitable beneficiary can get a regular income stream from a charitabl🔯e remainder trust while simultaneously donating money to charity from the trust.

After death, the trust pr🍸otects the money from creditors or greedy family members, passing it on instead to ch♌arity as directed by the trustor.

Disadvantages

The greatest disadvantage of a charitable remainder trust is that it is irrevocable, giving the trustor no access to or control over the f🐬unds in the trust and making it difficult to impossible to alter the terms of the trust.

A second disadvantage is that a charitable remainder trust is a complex construction whose creation and administration can be complicated and costly. In addition, it is important to run a thorough cost-benefit analysis to make sure that it is the best use for the assets you are planning to put in it.

The Bottom Line

Using one of the two types of charitable remainder trusts can provide you with a tax deduction and noncharitable beneficiaries with an income stream. Afterward, the remaining assets are passed to a designated charitable beneficiary without needing to go through probate.