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Charitable Remainder Trusts A Charitable Remainder Trust (CRT) is an irrevocable trust in which the Donor transfers assets into the trust and retains an annual payment until the end of the trust term. The term usually is for the life of the Donor or the Donor and the Donor’s spouse. At the end of the trust term, the assets in the trust pass to the charitable organization(s) of the Donor’s choice. Because the assets ultimately pass to charity, the IRS gives certain tax benefits to the Donor, which include the following:
Types of Charitable Remainder Trusts There are two types of Charitable Remainder Trusts: a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT). The charitable remainder annuity trust provides for a fixed annual payment or a payment based on the percentage of the value of the initial trust assets. The charitable remainder unitrust provides for a fluctuating annual payment based on a percentage of the trust assets, which are revalued each year. How Charitable Remainder Annuity Trusts Work The distinguishing characteristic of the charitable remainder annuity trust (CRAT) is its stream of non-varying and predictable payments during the life of the trust. The CRAT provides an annual payment of at least five percent of the fair market value of its assets at the time when the trust was established. The donor selects the percentage amount when the trust is written. Donors should be aware that payments from a charitable remainder trust are not guaranteed. The payments will only be made as long as assets are adequate to make the desired payments. If the trust asset diminishes to zero, it is terminated. Income Tax Advantages The charitable remainder trust retains several tax benefits. If a donor is filing an itemized Income Tax Return, the donor claims an income tax charitable deduction for the value of the AARP Foundation's "remainder" interest. US Treasury tables are used to calculate the remainder interest based on the beneficiary's age(s) (or the term of the trust, if 20 years or less), the payoff percentage, and the federal interest rate. The income tax deduction is a discounted value of the amount that the AARP Foundation will receive when the trust ends (remainder). What Happens to Capital Gains When a Gift of Appreciated Property Occurs? When a person sells property that has gone up in value, the entire amount of the realized capital gain is taxed in the year the asset was sold. If a donor elects to establish a charitable remainder trust with appreciated securities or marketable real estate and the trust sells the asset(s), there is no capital gain. Under normal circumstances, the trust is tax exempt. When assets are placed in a charitable remainder trust, the size of the donor's estate is reduced by the amount donated. This could result in a reduction of estate taxes, as well as reduce probate court and estate administration costs. Creating a Charitable Remainder Trust by Will A charitable remainder trust created at death is called a "testamentary charitable remainder trust." Upon the donors death, his or her estate receives an estate tax charitable deduction for a portion of the trust's remaining assets and the Foundation receives a donation which is available at some future date. A Charitable Trust Must Have a Trustee Donors may choose to serve as their own trustee, while others elect to have their financial advisor, a bank official, or a financial services firm serve as trustee. Under most circumstances, the donor names the person(s) who will receive trust payments. The donor can also be an income recipient. Payments can be made to an individual for life, followed by one or more successors, or to jointly benefit two or more people for their lifetimes then to survivors. When the trust terminates, the remaining assets are distributed to the Foundation. The gift could be a unique expression of the donor's interest whether it is to further the Foundation's work by helping the vulnerable elderly in communities throughout our country or serving older adults in need and their family caregivers. The Office of Planned Giving helps the donor structure the gift which reflects special interests in the Foundation. |
GONNELLA & MAJORS, PC
Attorneys and Counselors at Law
Attorneys in Our Office Carol H. Gonnella, J.D. M. Jason Majors, J.D., LL.M. Stephen P. Adamson, Jr., J.D. David I. Beckett, J.D., LL.M. |
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