Charitable remainder trusts (CRTs) are one of the estate planning devices people use to fulfill their family’s philanthropic vision while receiving tax savings. The key to making trusts work for you and your loved ones is to work with an adviser who understands your objectives and financial situation. SCC Legal has all the required expertise. We take the time to explain and recommend the trust fund vehicles appropriate to your circumstances.

In this article, we explain how CRTs work, highlight the types of charitable trusts, the benefits of charitable remainder trusts, and who can receive income from these vehicles. 

How Does a CRT Work? 

There are several types of charitable trusts, and charitable remainder trusts are one of the most popular. So, how does a CRT work? You set up an irrevocable trust and transfer the assets you want to donate to your preferred charity into the trust, making it a charitable remainder trust. The charity must be a U.S. charitable organization qualified by the Internal Revenue Service and could be a public charity, nonprofit organization, or private foundation. The charity or its investment manager serves as a trustee and pays the donor or someone the donor nominates an income. It can be for a lifetime or a predetermined number of years. 

Types of Charitable Trusts

The types of charitable trusts include charitable lead trusts (CLTs) and charitable remainder trusts (CRTs). With a CLT, the charity benefits first and receives an income for a specified time, while the donor gets an immediate charitable tax deduction on their tax return. There are two sub-trusts in the CRT category: charitable remainder annuity trusts (CRAT) and charitable remainder unitrusts (CRUT). When the trust makes regular payments of a fixed amount to the non charitable beneficiaries, it is deemed an annuity trust, while a unitrust pays out a percentage of the trust’s value. 

Benefits of a Charitable Remainder Trust

The IRS highlights several benefits of a charitable remainder trust. It helps you to plan major donations to your preferred charities while you or a nominee receive a predictable income over a specific period or for life. There are several tax-related benefits, as it may allow you a partial charitable deduction based on the value of the charitable interest in the trust. Donors might also defer income taxes on the sale of assets transferred to the trust. The property placed in such a trust is also excluded from your estate as it relates to determining estate tax. 

Who Can Receive Income From a CRT?

Charitable remainder trust income goes to one charitable and at least one living non-charitable beneficiary. The IRS states payments continue for the life of one or more beneficiaries or a specified term of up to twenty years. The remainder of the trust must pass to the qualified charitable organization at the end of the payment term and must be at least ten percent of the initial net fair market value of all property placed in the trust. 

For more information on estate planning law and trust funds, or if you want to discuss charitable remainder trusts in NJ, please contact our team at SCC Legal today or visit us at: https://www.scclegal.com/