A Charitable Remainder Trust (CRT) is an irrevocable, tax-exempt trust with two parts: 1) the income interest, and 2) the remainder interest. The income interest is the income paid to designated beneficiaries for their lifetime or a term of years. The remainder interest is the money remaining in the CRT when the trust terminates, and is paid to a qualified charity. Such a gift should result in an income, gift and estate tax charitable deduction.
A deduction will not be allowed for a gift of a remainder interest unless in one of 2 specific forms:
- An annuity trust – Income beneficiary is to receive a stated annual dollar amount
- A unitrust – Income beneficiary receives an annual payment based on a fixed percentage of the trust’s assets
General Rules for Charitable Remainder Trusts
(1) A charitable remainder trust provides for a specified payment:
- At least annually
- To at least one non-charitable beneficiary
- For a term of years, for the life of the non-charitable beneficiary, or the lives of several beneficiaries, AND
- With an irrevocable remainder to be paid to charity
(2) The obligation to pay the annuity or the unitrust amount must arise as of the decedent’s death,
(3) Payment period must be for the life of the individual beneficiary or lives of the beneficiaries, or for a term not exceeding 20 years, AND
(4) Charitable remainder must be equal to at least 10% of the value of the property contributed to the trust
Marital Deduction and Charitable Remainder Trusts
U.S.C. §2056(b)(8) allows a Decedent to leave their surviving spouse a lifetime or a term interest not to exceed 20 years in either a unitrust or an annuity trust, with a remainder interest passing to charity.
What are the personal financial benefits of CRTs?
Tax-Free Asset Conversion: Through a Charitable Remainder Trust, appreciated assets may be sold free from the erosion of Capital Gains Tax. Asset conversion is the most visible financial advantage of using a Charitable Remainder Trust.
Current Income Tax Deduction: A gift to a CRT can provide you with a current income tax deduction that can offset all forms of income.
Increased Cash Flow: You may own a highly appreciated asset that generates little or no income, but are reluctant to sell it because the capital gains tax could consume more than one-fifth of its value and one-fifth of the resulting income. The ability to sell the asset free from capital gain taxes enables a Charitable Remainder Trust to generate more income for recipients.
Retirement Planning and Asset Management: Among other things, retirement denotes reduction of management responsibilities, not only in the work place, but also with personal assets. The CRT not only provides the means to dispose of management intensive assets, it also supplies a mechanism to provide professional asset management during a person’s later years when it may be most needed or desired.
Gift and Estate Tax Planning: The Charitable Remainder Trust offers you an effective alternative to the payment of estate and gift taxes. Amounts transferred to a CRT are not generally subject to gift or estate taxes.
How to Set up a Charitable Remainder Trust?
Call our experienced North Carolina and South Carolina Trust and Estate attorneys today at (704) 608-3429 to set up your own charitable remainder trust.