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Understanding Charitable Remainder Trusts

January 17, 2023

A Charitable Remainder Trust (CRT) allows individuals to make a charitable gift while retaining an income stream for themselves or other beneficiaries. An individual (known as the grantor) transfers assets, such as cash or property, into the trust. The trust then distributes a fixed percentage of the trust's value, as determined by the grantor, to one or more non-charitable beneficiaries (such as the grantor or the grantor's family members) for a term of years or for the life of the beneficiary. After the end of the term or the death of the last beneficiary, the remaining assets in the trust are distributed to one or more charitable organizations (the remainder beneficiaries).

CRTs can be an attractive option for individuals who want to make charitable gifts but also want to continue to receive income from the assets they are giving away. They can also be used as an estate planning tool, as the assets placed in the trust are removed from the grantor's estate and are not subject to estate taxes when the grantor dies. Additionally, because the assets in the trust are being used for charitable purposes, the grantor may be able to claim a charitable income tax deduction for the value of the remainder interest that will eventually go to the charity.

There are two main types of CRTs:

Charitable Remainder Annuity Trusts (CRATs)

  • A CRAT pays a fixed dollar amount to the non-charitable beneficiaries each year, regardless of the value of the trust's assets.

Charitable Remainder Uni-Trusts (CRUTs)

  • A CRUT, on the other hand, pays a fixed percentage of the trust's value to the non-charitable beneficiaries each year. This means that the amount paid to the beneficiaries can fluctuate depending on the value of the trust's assets.

It is worthy to note that CRT's should be established with the professional help of an attorney or your financial advisor, as they are a complex area of tax and financial planning requiring a thorough understanding of the rules and regulations. Have questions? Use our Contact Form to Ask´╗┐

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.