Founding Attorney
A trust is a legal arrangement in which one party (the trustor) gives another party (the trustee) the right to hold and manage assets for the benefit of the trustor or a third party (the beneficiary). A charitable remainder trust (CRT) is a special type of trust that lets you support a charity while receiving income for yourself or your designated beneficiaries.
To create a CRT, you place assets into the trust, and it pays you or your chosen beneficiaries a steady income for the rest of your life or for a specific number of years. After you die or the specified time period is up, the remaining assets go to one or more charities you select.
CRTs offer considerable tax benefits, making them attractive for charitable giving and financial planning. They are effective tools for leaving a lasting impact on causes you value while also addressing your financial needs and those of your loved ones.
How Do Charitable Remainder Trusts Work?
You establish a charitable remainder trust by transferring assets like cash, stocks, or real estate into the trust and choosing a trustee to manage the assets. Then, the trustee uses those assets to pay you or the people you select a fixed or fluctuating income for a set time, either the lifetime of one or more beneficiaries or up to 20 years. Once this period ends, the trustee distributes any remaining assets to the charities you’ve chosen. This process allows you to collect regular income, enjoy tax breaks, and support your favorite causes.
Types of Charitable Remainder Trusts
There are two main types of charitable remainder trusts: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). Let’s explore the main differences between the two.
Charitable Remainder Annuity Trusts (CRATs)
A charitable remainder annuity trust (CRAT) provides you with a fixed, unchanging amount of income each year. When you set up a CRAT, you decide on this amount, which is a percentage of the initial value of the assets you put into the trust. This setup is ideal if you seek stability in your income, as it guarantees the same payout annually, regardless of how the trust’s investments perform.
Charitable Remainder Unitrusts (CRUTs)
A charitable remainder unitrust (CRUT) offers a more flexible payout system. Each year, you receive a fixed percentage of the trust’s current value, calculated annually. This means your income from the CRUT can vary from year to year based on the trust’s investment performance. If the investments do well, your payments increase. If they don’t, your payments decrease. This type of CRT can be appealing if you’re looking for potential income growth and are comfortable with some variation in your annual payouts.
Tax Benefits of Charitable Remainder Trusts
CRTs provide significant tax benefits. When you put assets into a CRT, you can get a tax deduction based on the value of your donation and other factors, like the income rate the trust will pay. This deduction can lower your tax bill the year you set up the trust. The assets you donate to the trust won’t be part of your estate, so they won’t be subject to estate taxes when you pass away. Plus, if you donate stocks or real estate that increase in value, you avoid paying capital gains tax on the increase.
Setting Up a Charitable Remainder Trust
The best way to set up an effective CRT is to work with a knowledgeable attorney. They can help you choose the right type of CRT for your situation. They can also draft the trust document on your behalf, making sure it meets all legal requirements and aligns with your wishes. Moreover, a lawyer can assist you in selecting a reliable trustee to manage the trust. With a lawyer’s help, you can avoid common trust-creation pitfalls and ensure that your charitable contributions and financial benefits are secure.
Contact a Trusts and Estate Planning Attorney Now
Ready to protect your assets and make a lasting impact? Contact the Law Office of Carey Thompson P.C. now for an initial consultation session. Let us help you secure your financial future and support the causes you care about.