The Charitable Remainder Trust

Everyone who is planning their estate should consider a charitable trust because of the substantial tax and other benefits provided by these trusts. This type of irrevocable trust is a very useful tool for people who want a current income tax deduction but do not want to give up all benefit of the assets donated to the trust.

Any income from the property that you donate will be paid to you for your life and then to your spouse for their life. When both you and your spouse die, the charity will then get the property that you gifted to the trust.

There are 2 types of Charitable Remainder Trusts: The Charitable Remainder Annuity Trust (CRAT) and The Charitable Remainder Unitrust (CRUT).

The CRAT provides that you, or someone else, will be given a pre-selected percentage of the trust’s value. The percentage is calculated based on the value of the property transferred to the trust. Once you establish the trust you cannot transfer any more property into it.

The CRUT provides that those entitled to the income will be paid a variable percentage of the trust’s value. The minimum amount must be 5 percent. Once you establish this trust, you may make additional contributions if certain conditions are met.

Example

You have purchased stock in a company for $.50 a share. The stock has risen in value to $100 per share. You have retired and need more money to live on. If you sold the stock you would incur a capital gains tax. In this situation, you could use the entire amount of the stock, without incurring a capital gains tax, by gifting the stock to a Charitable Remainder Trust and in turn receive a monthly payment for your and your spouse’s lifetime.