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 estate lawyer if you need help creating a charitable remainder trust.  An attorney near you can also represent you in court if any disputes arise over a CRT.