What is a charitable remainder trust?

A charitable remainder trust (CRT) is a type of irrevocable trust that often plays into asset protection and wealth preservation strategies.

CRTs are designed to minimize taxes on certain assets while generating an income stream for the primary (noncharitable) beneficiaries for a set time – after which all remaining assets go to the remainder (charitable) beneficiary. If you want to balance your desire for financial stability with your philanthropic goals, a charitable remainder trust may be the key.

How do CRTs work?

Charitable remainder trusts are a type of irrevocable trust, into which you can transfer property, investments, cash and other assets. You can then name yourself and/or others as beneficiaries of the trust, who will receive income from that trust’s principal or interest for a term of up to 20 years or the lifetime of one or more of those named. You also name whatever charity or charities to receive whatever remains in the trust at the end of that period.

There are two types of CRTs:

• A charitable remainder unitrust (CRUT): These pay an income based on a percentage of the trust’s value, recalculated annually, and you are permitted to continue to add to the trust over time through additional contributions
• A charitable remainder annuity trust (CRT): These pay a set dollar amount to the beneficiaries every year, which does not change over time, and the trust cannot be increased through additional contributions.

CRTs qualify for a partial tax deduction because the interest in them is held partially by a charitable organization. They are often used in situations where there are concerns about capital gains taxes on appreciated assets and gift taxes. Discussing your goals for your estate with a professional can help you decide if a CRT is right for you. Contact us online or call today for a free consultation with Pennington Law, PLLC.