2 Replies Latest reply on Feb 22, 2012 4:55 PM by JerryD

    Charitable Remainder Trust (CRT)

      What are Charitable Remainder Trusts (CRT)? Under what circumstances or who should consider creating them? Is planned giving an appropriate part of retirement planning? If yes, how should they be used? What are community trusts?
        • Re: Charitable Remainder Trust (CRT)
          MyR Community Manager

          Your questions show that you have really been doing some research around estate planning and for that you are to be commended. I checked with Doug Rothermich, Vice President of TIAA-CREF’s Wealth Planning Strategies, who shared these insights:

          A Charitable Remainder Trust (CRT) is a “split-interest” trust, where you retain an interest in the trust for yourself or for other beneficiaries for a specified period, followed by the trust property being distributed to designated charitable organizations.

          CRTs are often used to provide you or your beneficiaries with income for life and give you a current income tax charitable deduction.

          There are two general types of charitable remainder trusts classified by the type of initial payment: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs).

          CRATs pay an annuity each year during the trust term to the individual beneficiaries. The annuity is a fixed percentage of the original value of the trust, or a fixed dollar amount (e.g., 5% or $50,000).
          • CRUTs pay a unitrust amount each year during the trust term to the individual beneficiaries. The unitrust is a fixed percentage of the value of the trust determined each year (e.g., 5%). The unitrust payment will vary from year to year and will increase
          For gift or estate tax purposes, you will receive a gift tax or estate tax charitable deduction for the actuarial value of the charity’s remainder interest (determined using IRS proscribed interest rates and actuarial assumptions). The only portion of the transfer to the trust potentially subject to gift or estate tax is the value of the noncharitable beneficiary’s interest – if someone other than you will receive benefits from the trust before the assets are paid to charity.
          In addition to the gift or estate tax deduction, you may deduct the fair market value of the property contributed to the trust for income tax purposes (again, based on the actuarial value of the charitable remainder interest), subject to the alternative minimum tax rules.
          Finally, the CRT will be exempt from income taxes at the trust level. Once the assets are transferred to the trust, all of the trust interest and capital gain will be exempt from income tax at the trust level (e.g., the trustee could sell the assets contributed to the trust and reinvest the full amount of the proceeds without recognizing any capital gain in the trust).

          The tax information provided above is not intended to be used and cannot be used by any taxpayer for the purpose of avoiding tax penalties. It was written to support the promotion of the Wealth Management Group services. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.

          • Re: Charitable Remainder Trust (CRT)
            Bala, we viewed charitable gifts to be part of our estate planning and maybe indirectly part of retirement planning. We have a revocable living trust where our charitable gifts do not kick in until the last of us passes. There are also conditions where he kids need to be guaranteed a minimum before the gifts kick in just in case medical, investment performance or other life events reduce the estate. We did not want to commit to gifting before we pass. Too many life scenarios exist for us to tie up assets in gifts before we move on.
            In another thread we discussed what these types of trusts can control and what they cannot. Just be aware and educated about  how distributions to beneficiaries of payable on death assets (life insurance, IRA's, Roth's, etc.) are excluded from trust control so keep them current.