The charitable remainder trust (CRT) is a popular retirement- and estate-planning tool. It can be a convenient way to create a stream of lifetime income for yourself and others or donate to a charity while minimizing and deferring taxes. But there are many choices to make when establishing a CRT and, in some cases, these tools may not be right for everyone.<\/p>\n\n\n\n
A charitable remainder trust is a type of \u201csplit interest\u201d trust. It makes fixed payments to one or more income beneficiaries either for life or for a specified period of up to 20 years. Payments may be issued monthly, quarterly, semiannually, or annually. Upon the death of the income beneficiaries, or once the specified term has ended, whatever is left in the trust goes to one or more qualified U.S. charities. That remainder must be worth at least 10% of the initial value of the trust assets.<\/p>\n\n\n\n
There are two types of CRTs:<\/p>\n\n\n\n
You establish a charitable remainder trust by donating assets. These can take various forms, such as cash, stocks, real estate, and private business interest. Once it\u2019s funded, a trustee manages the trust.<\/p>\n\n\n\n
Charitable remainder trusts are often established by a living donor who is also the income beneficiary, but they can also be established upon the donor\u2019s death as a way to provide income for one or more heirs. <\/p>\n\n\n\n
A charitable remainder trust is irrevocable, which means that once you place an asset in the trust, you can\u2019t change your mind and take it out.<\/p>\n\n\n\n
Setting up a CRT can result in tax benefits. The assets you transfer to a CRT are partially tax-deductible based on the projected amount of the eventual charitable gift and other factors. Assets inside the trust enjoy tax-deferred growth. Appreciated assets donated to a CRT can be sold by the trust without incurring capital gains taxes. That said, payments to beneficiaries, are generally taxable.<\/p>\n\n\n\n
A CRT can also simplify estate planning. As an irrevocable trust, the CRT is not considered part of the donor\u2019s estate. That means, for example, the remainder of the trust transfers immediately to the charitable beneficiaries upon death without getting stuck in probate.<\/p>\n\n\n\n
That said, charitable remainder trusts also come with some pitfalls. They can be complicated to set up and administer, and if you run afoul of certain requirements, you could retroactively lose a CRT\u2019s tax benefits. For example, the charitable remainder must equal at least 10% of the value of the trust at the time it was established. If you wind up drawing too much in income and leaving too little to the trust\u2019s charitable beneficiaries, your estate may owe additional income, gift, and estate taxes. Also, certain assets, such as S corporation stock and mortgaged real estate, are not allowed in a CRT. Their presence in the trust will disqualify it as a CRT. <\/p>\n\n\n\n
Talk to a financial professional to determine if a CRT is the right choice for you and how best to take advantage of their income, philanthropic, and tax-management benefits.<\/p>\n\n\n\n
SOURCES:<\/p>\n\n\n\n
https:\/\/www.irs.gov\/charities-non-profits\/charitable-remainder-trust<\/a><\/p>\n\n\n\n https:\/\/www.fidelitycharitable.org\/guidance\/philanthropy\/charitable-remainder-trusts.html<\/a><\/p>\n\n\n\n https:\/\/www.investopedia.com\/terms\/c\/charitableremaindertrust.asp<\/a><\/p>\n\n\n\n https:\/\/www.cl-law.com\/uploads\/1461863023.pdf<\/a><\/p>\n\n\n\n