Charitable Remainder Trust
This is the most flexible of life-income plans, and a powerful way for you to benefit along with your heirs and the GALLOPNYC. Some versions of CRTs can be funded with closely held stock, partnership interests, real estate, and in some instances, tangible personal property such as works of art. You can choose to receive a variable or fixed income (beginning immediately) for life or a term of years. There is no limitation on the number of beneficiaries of a CRT.
- When appreciated assets are donated to the trust, they can be sold without incurring capital gains tax, allowing the entire proceeds from the sale to be reinvested.
- You can receive a charitable income tax deduction in the year the gift is made, with an additional five years to carry over any unused deduction.
- You can add to certain types of CRTs at any time.
- Through reinvestment within the trust, you can achieve diversification of a previously concentrated asset.
- Any assets that you contribute to a CRT are immediately removed from your estate, reducing your estate tax exposure.
Basic Types of CRTs:
- Unitrust (CRUT): This type of trust pays a variable income based on a fixed percentage (for example, between 5 and 6 percent) of the trust assets, revalued once each year. One advantage of a unitrust is that your income can increase as the trust principal grows over time. This type of CRT allows you to make additional contributions at any time.
- Annuity Trust (CRAT): This type of trust pays a fixed annual income that is determined when the trust is established. The annuity trust is often preferred by those who are interested in the security of a constant return.
Charitable Lead Trust (CLT).
In a Charitable Lead Trust, the charity gets an annual annuity for a set term and the remainder goes to trust for the donor’s beneficiary free of estate tax. In addition to providing a means for benefiting a favorite charity, a properly designed lead trust will produce an estate or gift tax deduction for the donor for the value of that portion of the trust designated for charity. For someone that gives annually and wants what’s left to go to kids free of estate tax this is a good strategy. Think of it as an inverse to CRT. The exact tax treatment will depend on the type of trust, grantor or non grantor., and other factors.
- In a grantor charitable lead trust, the grantor can take an immediate income tax charitable deduction for the present value of the future payments that will be made to the charitable beneficiary, subject to applicable deduction limitations. However, the trust’s investment income is taxable to the grantor during the trust’s term.
- With a non-grantor charitable lead trust, the trust is considered the owner of the trust assets. The trust itself pays tax on its undistributed net income, and is able to claim an unlimited income tax charitable deduction for its distributions to the charitable beneficiary.
Charitable gift annuity donors (annuitants) receive payments for the rest of their lives. The size of your payment is determined by many factors, including your age(s) when you set up the charitable gift annuity. (For example, younger donors will typically receive more payments but they’ll be smaller.) The amount is fixed and will never fluctuate or adjust for inflation. But it’s also backed by the charity’s entire assets, not just your gift, and will continue for the lives of the donors no matter how well or poorly the investments of the annuity perform.