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How Do Charitable Remainder Trusts Work?

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  1. A charitable remainder trust (“CRT”) is an example of a “split interest” trust. It has two sets of beneficiaries; the “income” beneficiary, that is not a charity, and the “remainder” beneficiary that is a charity.  The CRT states that a specified payment be made to the non-charitable income beneficiary either for a set number of years (not to exceed 20) or the lifetime or lifetimes of the non-charitable income beneficiaries,, with the remainder passing to charity.
  2. A gift to a CRT allows the settlor an immediate income tax deduction, equal to the actuarial value (using the IRS 7520 rate) of the remainder interest that charity will receive. When the remainder beneficiary is a public charity, if cash is contributed the deduction is available up to 60% of the settlor’s adjusted gross income (“AGI”) for the year; if the remainder beneficiary is a private foundation, the deduction is limited to 30% of the settlor’s AGI.  If a capital asset is contributed, when the remainder beneficiary is a pubic charity the deduction is up to 30% of the settlor’s AGI; if the remainder beneficiary is a private foundation, the deduction is up to 20% of the settlor’s AGI.

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