Charitable Remainder Trusts

November 12, 2013. Charitable Remainder Trusts can be a useful instrument when an individual genuinely wants to incorporate charitable giving into their estate plan. It can also ease the conscience by striking a balance between providing for those in the present while also preserving enough assets for those that will eventually receive the property. As it works, the trust is set up so that for the life of a beneficiary or group of beneficiaries, it pays out to those beneficiaries some percentage of the trust corpus. At the termination of the trust, the assets are subsequently handed off to a charitable organization of the grantor’s liking. Properly funded and managed, the trust takes care of loved ones during their lives, and afterwards allows the settlor to make a bequest to a charity that is more than simply a token gesture or tax minimizing scheme.

There are two types of Charitable Remainder Trusts, the Charitable Remainder Annuity Trust and Charitable Remainder Unitrust. They also bear the unattractive nicknames of CRAT and CRUT, respectively. The significant difference between the two is the formula for determining the value of the distribution of the life estate beneficiaries. In a CRAT, payment is determined by selecting a percentage that is then multiplied by the original value of the trust assets. This dollar amount is then distributed annually to the beneficiary. The CRUT provides a floating benchmark. A single percentage is chosen, and it is multiplied against the current value of the trust assets, adapting to lush and lean years, or rewarding or improvident investments.

Another not to be overlooked advantage, is that even though the charitable remainder altruism is deferred, it does allow for a charitable income deduction in the present since the remainder interest, the piece which gets passed on to the charity, can be given a value today.

For more information on this and other estate planning, wills and trusts topics contact Goosmann Law Trust Counsel at info@goosmannlaw.com or by calling 712.226.4000. We offer individualized estate planning packages for your unique needs, wants and goals.