When it comes to trusts, there are many types of both revocable and irrevocable trusts you can have as part of your estate plan. This article will focus on a specific type of trust: a charitable remainder trust, examined in further detail below.
What Exactly is a Charitable Remainder Trust?
A charitable remainder trust, or CRT, is a type of tax exempt irrevocable trust that allows you to donate assets to a charity of your choice while receiving income for a specific period of time or for life.
How Does a Charitable Remainder Trust Work?
The following is a breakdown of how charitable remainder trusts work:
- A donor transfers assets into the trust, such as property, cash, etc.
- At least one beneficiary receives income from the CRT
- At least one beneficiary receives the income for a period of up to 20 years or for their lifetime
- Following this time period, the remainder of the assets pass along to at least one charitable organization selected (can be multiple charitable organizations)
How Do Charitable Remainder Trusts Differ From Other Types of Trusts?
Charitable remainder trusts differ from other types of trusts in that a charitable remainder trust can often last much longer than other types of trusts. The state attorney general is often responsible for the administration of a charitable remainder trust.
What are the Benefits of a Charitable Remainder Trust?
Charitable remainder trusts have numerous benefits, including being able to receive benefits immediately while setting up a charity to receive benefits in the future. There are a number of other benefits when it comes to CRTs, including the following:
- Earning additional income
- Reduce your current income taxes because of charitable income tax deductions
- Benefit a charity (or multiple charities) of your choice
What are the Disadvantages of a Charitable Remainder Trust?
On the other hand, some may also find disadvantages to CRTs. Some of the disadvantages you might find with a CRT include:
- CRTs are irrevocable, meaning you cannot make changes to the trust
- If there is not a substantial amount of assets placed in the trust, you likely won’t receive much income as a result
- Unless you possess significant wealth, you likely will not see estate tax benefits
- If the CRT runs out of money before it would benefit the charity or charities of your choosing, those organizations do not receive any benefit, negating your good intent
What Else Should You Know About Charitable Remainder Trusts?
Before setting up a charitable remainder trust, there are a few more important aspects to note. Some of these include checking with the IRS to ensure that the charity or charities that you want to benefit are approved and deciding if you want to receive the income for a set period or for life, among other considerations.
For any questions regarding charitable remainder trusts, or any of your other estate planning needs, we are here to help. Contact us today to learn more about how we can work with you.
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