A charitable remainder trust (CRT) can serve as a strategic estate planning tool that allows individuals to support charitable causes after they’ve passed away while benefitting from assets placed in a particular trust during their lifetime. It can provide tax benefits, generate income for the donor or their beneficiaries, and ultimately contribute to a meaningful charitable legacy.
A CRT is an irrevocable trust that holds assets for a period of time, during which designated beneficiaries receive regular income. At the end of the trust’s term—either after a specified number of years or upon the donor’s passing—the remaining assets are transferred to a designated charity. There are two main types of CRTs:
- Charitable Remainder Annuity Trust (CRAT): Provides fixed annual payments to beneficiaries, making it a predictable income source. Additional contributions to the trust are not allowed.
- Charitable Remainder Unitrust (CRUT): Distributes a percentage of the trust’s value each year, with payments fluctuating based on investment performance. Additional contributions can be made over time.
Donors may receive an immediate charitable income tax deduction based on the value of the charitable remainder. Additionally, assets placed in a CRT are removed from a taxable estate, potentially reducing estate taxes.
Is a CRT right for your needs?
A charitable remainder trust is most beneficial for individuals with significant assets who want to support charity while securing financial benefits. If you have appreciated assets, want to reduce tax liabilities and wish to balance income generation with charitable giving, a CRT may align with your goals.
Consulting with an experienced estate planning attorney can help you determine if a CRT fits your financial and philanthropic objectives.