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​​​​© 2019 by Lara Sass & Associates, PLLC 

 

The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

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Charitable Remainder Trust (CRAT and CRUT)

 

A charitable remainder trust is an irrevocable trust by which a donor makes a deferred charitable gift.  A charitable remainder trust may take the form of either a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT).  The donor retains the right to an annual annuity amount (a fixed dollar amount that does not change from year to year) or a unitrust payment (a fixed percentage of the value of the trust, paid each year, that can change as the value of the trust increases or decreases) for the donor’s lifetime (or the combined lifetime of the donor and his or her spouse), and the charity receives the remainder of the trust following the expiration of the income interest.  The donor receives an income tax deduction in the year the trust is established and funded, and the assets are no longer subject to estate tax upon the donor's death.  

 

The use of a charitable remainder trust is particularly beneficial where the donor has appreciated property, with a very low basis, which is producing little or no income.  The charitable remainder trust may sell this property free of capital gains tax and invest the proceeds in high income producing assets, thereby providing the donor with an increased income stream without reducing the investment assets through the payment of capital gains tax.

 

Often, a charitable remainder trust is paired with an annual exclusion gifting program.  With such a program, the donor would utilize a portion of the stream of income received from the trust to fund annual exclusion gifts to children or other family members.  Such gifts may take the form of the acquisition of a life insurance policy in an irrevocable life insurance trust, sometimes called a "wealth replacement trust" because it provides the children with funds to offset the loss of the assets passing to the charity.