Charitable Remainder Trusts

CHARITABLE TRUSTS are a very popular estate-planning tool for charitable-minded individuals. A Charitable Remainder Trust (CRT), more formally called a “Split Interest Trust” under the law, is an irrevocable tax-exempt Trust with a non-profit organization as the charitable beneficiary (the “Remainder”) and the non-charitable beneficiaries as Income Beneficiaries (the “Income Beneficiaries” or “Term Beneficiaries”). A Charitable Remainder Trust allows you/your spouse and children, as the non-charitable beneficiaries, to receive designated annual payments during their lifetime or during a fixed term of years (up to 20 years). The annual payments to the non-charitable beneficiaries must be at least 5% of the value of the Trust’s assets, they cannot exceed 50%, and the present value of the amount going to one or more qualified charities must be at least 10% of the amount contributed to the Trust. When you contribute cash or property to the Charitable Remainder Trust, the donation qualifies for an income tax charitable contribution for the value of the Remainder’s interest. This is calculated according to IRS tables based on your life expectancy or on the term of the Trust, current interest rates, and the rate used to calculate annual payments for the life of the Income or Term Beneficiaries.

Assets inside of the Trust grow tax-free. Since the Trust usually pays no income tax, the full sale proceeds realized by the Trust upon receipt of your contribution or from the sale of appreciated assets can be fully reinvested. The income that you and/or other income and Term Beneficiaries have is reportable as taxable income. Some Charitable Remainder Trusts can serve as a quasi-retirement plan for you.