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Charitable Remainder Trust

Updated on March 1, 2012

Estate Planning - Planned Giving

The charitable remainder trust enables an individual to make a substantial deferred gift to a favored charity while retaining a right to payments from the trust. Under the right circumstances, this type of trust can offer multiple tax and nontax advantages. These advantages include a charitable deduction resulting in reduced taxes, an increase in cash flow, avoidance of capital gains upon a sale of the appreciated property and the eventual reduction or elimination of estate taxes. In addition, there is the benefit and personal satisfaction of knowing that the property placed in trust will pass to charity.

At the time the property is given to the trust, the grantor can claim a current income tax deduction. Many times, the trustee will often sell the appreciated property and reinvest the proceeds in order to better provide the cash flow required to make the payments to the grantor. The tax savings and increased cash flow will often enable the grantor to use some of the savings to fund a wealth replacement trust for the benefit of their heirs.

Per the IRS, under section 664(d) of the Code, charitable remainder trusts include charitable remainder annuity trusts and charitable remainder unitrusts. Generally, a charitable remainder trust is a trust that provides for a specified distribution, at least annually, to one or more beneficiaries. Furthermore, at least one of beneficiaries is not a charity, for life or for a term of years, with an irrevocable remainder interest to be held for the benefit of, or paid over to, charity.

In general, a charitable remainder trust (CRT) will provide for a specific periodic distribution to one or more noncharitable beneficiaries for life or for a term of years with an irrevocable remainder interest held for the benefit of the charity. A CRUT will pay a unitrust amount at least annually to the beneficiaries as opposed to a charitable remainder annuity trust or CRAT, which pays a sum certain at least annually to the beneficiaries. (IRS Code Sec. 664)

As trustee A commingles the assets of several charitable remainder trusts with the assets of A's general endowment fund for purposes of investment. The donor or any individual beneficiary does not have any control over the investment decisions made with respect to the trusts. There are no restrictions in the instruments as to the manner in which the trustee may invest the assets.

Upon death, the property that was placed into the charitable remainder trust passes to the designated charity.

Since laws, rules and regulations can change at just about anytime, it is important to consult with your attorney and CPA before making decisions.

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