Advantages of Charitable Remainder Trusts
Authored by Ken LaMance, LegalMatch Law Library Managing Editor and Attorney at LawLocate a Local Finance Lawyer
What’s a Charitable Remainder Trust?
A charitable remainder trust, or “CRT”, is a type of trust that provides annual payments to named beneficiaries. The payments may be made for life or for a term of years. Most importantly, the remainder interest of the trust is paid out to the benefit of a named charity. This portion of the trust is irrevocable; however IRS codes create several tax benefits for creators of charitable remainder trusts.
What are Some Advantages of a Charitable Remainder Trust?
There are several advantages associated with CRT’s, most of them having to do with tax mechanisms. These may include:
- Immediate charitable tax deduction for the creator
- Any capital gains that are built into the assets are forgiven
- The creator may control the trust investments if they serve as a trustee
- Trustees may invest and diversify the trust assets in an environment that is tax-free (in a similar way to IRA’s)
- Eliminates estate taxes for assets that are held in the trust
While CRT’s require the assets to ultimately be given to a charity, these advantages create many favorable incentives for people to create such a trust. In particular, CRT’s are favorable for persons who are already contemplating transferring some of their assets to a charitable entity.
Are There Different Types of Charitable Remainder Trusts?
Yes- there are two basic types of CRT’s, with the difference having to do with the way that the payments are made out. These are:
- Charitable Remainder Annuity Trusts (CRAT): Fixed payments are made every year
- Charitable Reminder Unitrust (CRUT): Payments are made according to a set percentage of the trust assets each year. Payments will vary, as the percentages and trust assets are valued each year, which may change from year to year
Do I Need a Lawyer for Assistance With a Charitable Remainder Trust?
A charitable remainder trust can be a useful tool for persons seeking different ways to distribute their assets. However, creating an executing a charitable remainder trust is usually quite complicated. CRT’s generally require the expert advice of a qualified tax or trusts attorney. You may wish to hire an experienced lawyer if you need help creating a charitable remainder trust. An attorney can also represent you in court if any disputes arise over a CRT.
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Last Modified: 02-04-2015 12:49 PM PST
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