Find the right lawyer now

How Does a Charitable Remainder Trust Work?

Find a Local Bankruptcy & Finances Lawyer near You

What is a Charitable Remainder Trust?

A charitable remainder trust is an estate planning device through which property is placed in a trust for a charitable organization. The person who set up the trust (a grantor or settlor) will receive income payments throughout his or her life, and then, when he or she dies, the charity will receive the property within the trust.

There are two types of charitable remainder trusts: A unitrust and an annuity trust.

  1. Unitrust – Income payments are based on a percentage of the value of the trust’s assets. However, the assets are revalued each year so the amount of the payments fluctuates.
  2. Annuity trust – The rate of income is fixed when the trust was first created, so payments are on a set schedule.

There are significant tax advantages to using a charitable remainder trust. Highly appreciated property, such as real estate or a stock portfolio can be donated to a charity for the life of the grantor. The income from the stock portfolio continues to go to the grantor, which is reported to the IRS as taxable income. The donation, however, is tax-deductible.

If the grantor does not need the income, it can stay in the trust tax-free and be deferred until a later year. This eliminates capital gains taxes on highly appreciated assets, such as stocks. It can also reduce the estate tax your heirs might have to pay after your death by up to 50%.

However, net distributions must amount to at least 5%. This is often used as a retirement plan, since income can be deferred until retirement.

Do I Need an Attorney for my Charitable Giving Matter?

You should always confer with an estate lawyer to plan the distribution of your estate. Lawyers understand the tax implications of estate planning, and will guide you through the difficulties associated with drafting wills and trusts. A lawyer will also help explain charitable giving, and how best to draft charitable trusts.

Photo of page author Rachel Wenzel

, LegalMatch Legal Writer

Last Modified: 05-21-2018 12:15 AM PDT

Law Library Disclaimer
  • No fee to present your case
  • Choose from lawyers in your area
  • A 100% confidential service
What is LegalMatch?

We've helped more than 4 million clients find the right lawyer – for free. Present your case online in minutes. LegalMatch matches you to pre-screened lawyers in your city or county based on the specifics of your case. Within 24 hours experienced local lawyers review it and evaluate if you have a solid case. If so, attorneys respond with an offer to represent you that includes a full attorney profile with details on their fee structure, background, and ratings by other LegalMatch users so you can decide if they're the right lawyer for you.