A charitable remainder trust (a “CRT”) is an irrevocable trust to which an individual (a “donor”) makes a gift of property and designates at least one non-charitable beneficiary as the income beneficiary (typically the donor) and at least one qualifying charity as the remainder beneficiary. The trust must pay to the non-charitable beneficiary an annuity or unitrust payment each year for the non-charitable beneficiary’s life or a term of years not to exceed twenty years. Upon the death of the non-charitable beneficiary or the termination of the term, the assets remaining in the trust will pass to the designated charity.
If properly structured and administered, a CRT provides several significant benefits to the donor. Specifically, a CRT will (a) provide the donor (or other income beneficiary) with an income stream, (b) remove the gifted assets from the donor’s taxable estate, (c) provide the donor with a current income and gift tax charitable deduction, (d) permit the tax-free growth of assets within the CRT, (e) permit the sale of appreciated assets without immediate gain recognition and (f) accomplish charitable goals.
CRTs take several different forms, the effectiveness of each depending on the client’s particular facts and circumstances. The primary characteristic distinguishing the various forms of CRTs is the manner in which the noncharitable income interest is deﬁned. In order to effectively serve clients, planners must have a working knowledge of the differences between the various types of CRTs and the situations in which each form is best utilized.
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