What is a Charitable Remainder Trust (CRT)?

Charitable Remainder Trusts (CRTs) are vehicles that move highly appreciated assets into income producing assets over a period of years, with the remainder of the donated assets going to your favorite charity or charities. You do not pay capital gains tax when you transfer your highly appreciated assets to a trust and reposition those assets. You also get a tax deduction for the gift to the trust. That deduction is calculated by determining the amount that will go to charities versus what you will end up receiving as income over time.

A Charitable Remainder Unitrust (CRUT) stipulates a percentage of assets that is available for you to take as income each year. This amount varies with the performance of the trust. A Charitable Remainder Annuity Trust pays you a fixed amount each year. There are also Charitable Remainder Lead Trusts where the income goes to charity but then goes back to beneficiaries after a certain period. There are also Charitable Net Income Make-up Trusts (NIMCRUTS) which allow for the deferment of income until a triggering event happens.

Calculating the income available involves the age or ages of the beneficiaries, the AFR (Annual Federal Rate), the amount of the gift, the term, and whether it’s for one life or two.

Once the trust is established, it is irrevocable. Nothing can be changed except for charities. You can name multiple charities.

Aside from highly appreciated assets, some people leave their IRAs and retirement plans to a Charitable Trust providing income to a loved one, and the balance to charities when the term expires. This will avoid tax due on the IRA at death. The beneficiary will pay tax on the income they receive.

The deduction you receive from gifting to a trust may enable you to offset gains from other assets. You can roll forward your unused deduction for up to 5 years.

Some people use Charitable Remainder Trusts in conjunction with Irrevocable Life Insurance Trusts (ILITs). The income from the trust is used to buy insurance in a trust to, in essence, swap taxable IRAs with tax free insurance.

Check out a couple other recent pieces in this series, where we covered Donor-Advised Funds (DAFs) and Qualified Charitable Distributions (QCDs).