You Can Create a Charitable Remainder Trust either as a CRAT or a CRUT

Charitable remainder trusts (CRTs) can give you income now or a legacy for your beneficiaries at your death while you contribute to charity. You, of course, get a chartable deduction that helps you too. And of course you get income and eventual estate tax breaks for your charitable donation. This article shows you how it works.

As with all trusts, the grantor can choose the trust's beneficiaries and the trustee. He can choose himself for either, too. The typical grantor/donor is looking for income either for life or a specified term of years. He or she is usually between 55 and 80 years old.

The "income tax deduction" you actually receive depends on the present value of the trust's remainder that goes to a charity when you die. To determine it, the Internal Revenue Service (IRS) considers the ages of the donor and other income beneficiaries, the annual payout of the trust, and an IRS index rate known as the Applicable Federal Rate (AFR). If the present value of the remainder interest equals at least 10% of the value of assets transferred into the trust, then the trust may qualify as a charitable remainder trust. So the older the donor, the greater will be the current chartable deduction.

Charitable remainder trusts come two flavors. If you want a guaranteed fixed income amount every year (like an annuity) you'll create a Charitable Remainder Annuity Trust (CRAT). If¸ on the other hand, you're willing to take a set percentage of the fund's value (called a unit amount) annually, you'll create a Charitable Remainder Unit Trust (CRUT).

*For Donor Wants:
The CRUT will supply more income as trust value increases. He can make additional gifts to the trust as time goes on, too. The CRAT only supplies him a fixed income based on the initial trust value and allows no future gifts to the trust.

*Trust features:

The CRUT gives you income for life, but the payments are variable since they're based on a fixed percentage of the fund's value. It does give you flexible investment possibilities so it allows you to be more aggressive at investing the trust's funds, but -as always - with increased risk.

The CRAT's fixed income for life uses an asset investment approach designed to balance income and principal preservation.

*Another Option - Rather than Creating Your Own CRT:

If you don't want to set up a CRT, you can make use of a pooled income fund offered by larger charitable institutions. Contributions to such a fund by a donor results in a charitable deduction for both income and gift tax purposes.

The donor, either by himself or with his spouse, can receive for his life a share of the fund's income. The income amount is measured by the number of units of participation the donor purchased. The charitable deduction results from the fact that the donated amount becomes the charity's property at the termination of the life interest or interests.


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