What Is a Charitable Remainder Trust?

A charitable remainder trust is a type of irrevocable trust that provides income for the donor or other beneficiary, allowing for the remaining assets to 🦂be donated to a charity, reducing taxable income.

They are set up with a donation by the trustor (also known as “the grantor” or “the benefactor”) that provides a part♐ial tax deduction. They then operate by dispensing income to either the trustor or🐟 one or more named noncharitable beneficiaries for a specified period.

After this period, they donate the remainder of the trust to one or more designated charitable beneficiaries, which can be either a 澳洲幸运5官方♊开奖结果体彩网:public charity or a private foundatioౠn.

How Does a Charitable Remainder Trust Work?

Tax Advantages

A central idea of a charitable remainder trust is to reduce taxes. This is done by first donating assets into the trust and then having it pay one or more n♊oncharitable beneficiaries for a stated period♑, which can be no longer than either 20 years or the life of one or more of the noncharitable beneficiaries.

The payments can be made annually, semiannually, quarterly, or monthly. Once the time frame expires, the remainder of the estate is transferred to one or mo💎re charitable beneficiaries.

Assets that can be donated to a charitable remainder trust include cash,🔜 stocks, real estate, private business interests, and private company stock.

The partial tax deduction a trustor🎐 receives for their donation is based on the trust’s type and term, the projected income payments to the charitable beneficiarie♎s, and interest rates set by the Internal Revenue Service (IRS) that are determined by assumptions about the growth rate of trust assets.

Retirement Planning and Estate Planning

In addition to tax management, charitable remainder trusts can also offer benefits for 澳洲幸运5官方开奖结果体彩网:retirement planning and 澳洲幸运5官方开奖结果体彩网:estate planning.

Charitable remainder trusts are irrevocable, which means that they cannot be modified or terminated without the charitable beneficiaries’ permission. The trustor, having transferred assets into the trust, effectively removes all of their rights of ownership of the assetsꦅ and the trust upon the creation of it𝓀s irrevocable status.

By making a trust irrevocable, the trustor is removing it from inclusion in their estate, meaning that it will not be part of the probate process, is not subject to 澳洲幸运5官方开奖结果体彩网:estate taxes, and can transfer to a beneficiary immediately.

In contrast, a 澳洲幸运5官方开奖结果体彩网:revocable trust, which allows the trustor to make modifications to the trust over the 𓄧years or end it entirely, is considered a part of the trustor’s estate and will be subject to both probꦍate and estate taxes.

The Secure 2.0 Act, part of the Consolidated Appropriations Act of 2023, which was signed into law by President Biden on Dec. 29, 2022, includes special provisions for making a one-time qualified charitable distribution from an IRA of no more than $50,000 to a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT).

This provision of the Secure Act 2.0 also applies to 澳洲幸运5官方开奖结果体彩网:charitable gift annuities (CGAs). Special rules apply to these donations so get advice from a tax expert.

Types of Charitable Remainder Trusts

There are two main types of charitable remainder trus🐭ts, distinguished in part by whether they pay a fixed or fluctuating annual amount to the noncharitable beneficiaries.

Charitable Remainder Annuity Trust (CRAT)

澳洲幸运5官方开奖结果体彩网:Charitable remain🃏der annuity trusts (CRATs) distribute a fixed annuity each year to their noncharitable beneficiaries. This amount is always the same and must be at least 5% but no more than 50% of the assets in the trust. They do not allow for additional contributions.

Charitable Remainder Unitrust (CRUT)

澳洲幸运5官方开奖结果体彩网:Charitable remainder unitrusts (CRUTs) distribute a fixed percentage based on the balance of the trust assets, which are revalued every year. The annual amount will fluctuate, but, as with CRATs, it must be at least 5% but no more than 50% of the assets in the trust. Unlike a CRAT, though, a CRUT does allow for additional contributions.

Advantages and Disadvantages of Charitable Re⛎mainder Trusts

Advantages

The biggest advantage of a charitable remainder trust is its tax savings. The trustor not only gets a partial tax deduction for their donation to the trust; they also can see a reduction in 澳洲幸运5官方开奖结果体彩网:capital gains, gift, and estate taxes.

Another advantage is that unlike with a 澳洲幸运5官方开奖结果体彩网:charitable lead trust, a trustor or their designated noncharit🍸able beneficiary can get a regular income stream from a charitable remainder trust while simultaneously donating money to charity from the trust.

After death, the trust protects the money from creditors or greedy family members, passing it on instead to charity as directed 🦩by the trustor.

Disadvantages

The greatest disadvantage of a charitable remainder trust is that it is irrevocable, giving th😼e trustor no access to or control over the funds in the trust and 🍌making it difficult to impossible to alter the terms of the trust.

A second disadvantage is that a charitable remainder trust is a complex construction whose creation and administration can be complicated and costly. In addition, it is important to run a thorough cost-benefit analysis to make sure that it is the best use for the assets you are planning to put in it.

The Bottom Line

Using one of the two types of charitable remainder trusts can provide you with a tax deduction and noncharitable beneficiaries with an income stream. Afterward, the remaining assets are passed to a designated charitable beneficiary without needing to go through probate.