Charitable Remainder Trust 
What is a Charitable Remainder Trust?
A Charitable Remainder Trust (CRT) is a tax-saving alternative for people who want to make a substantial gift to a charitable organization. It can be a powerful tool for many individuals, especially those who have highly appreciated assets like stock, mutual funds or real estate and are looking to increase their current income.
 
In exchange for a charitable gift, the CRT pays income to the trust income beneficiary (usually you or your spouse as donors) for a fixed period or for life.  At the end of the trust (which is usually your lifetime), the remaining assets pass to the charity you have chosen.  Here are some of the benefits a CRT offers:
 
  • Provides a current income tax deduction.                           
    A gift to a CRT creates an income tax deduction for the donor (of the present value of the charitable gift).  This current income tax deduction helps offset the donor's taxable income.
  • Defers capital gain taxes.                                                        
    Because a CRT is tax-exempt, capital gains tax liability is deferred when the full value of the assets are sold by the CRT.  This allows the CRT to convert the full value of the asset into an investment that can provide a lifetime income for you and your spouse.
  • Reduces or eliminates estate taxes.                                      
    Since the donated assets generate a charitable estate tax deduction at the death of the income beneficiary, estate taxes may be decreased or eliminated.  These changes may affect charitable and estate planning goals.  Therefore, donors should consider the tax benefits very carefully and consult with a tax adviser before transferring assets to a CRT.
  • Provides an income stream, often for life.                            
    When assets are donated to a CRT and sold, the money generated from the sale may be placed in an income-producing investment.  The income is then distributed according to the trust provisions.  For some types of CRT's, principal may also be distributed.  Because there have been no capital gains taxes paid, the amount invested may be greater than if the assets had been sold outside of a CRT and had been subject to capital gains or income taxes.
  • Benefits the charity of your choice.                                      
    When the trust ends, the assets remaining in the trust pass to the charity of your choice.

A CRT is an irrevocable trust.  This means that once it is set up and a charitable gift is made, it cannot be undone.  In order to realize its full potential, a CRT requires special legal, accounting and tax administration.  Your investment professional, attorney and tax adviser should all be included in discussions about whether a CRT is right for you.