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Charitable Remainder Trusts

A charitable remainder trust ("CRT") pays an annuity or unitrust amount to its creator or another person for a term of years (not to exceed 20) or for life and then pays its remaining property to charity. The trust itself pays no income tax. As a result, if a taxpayer transfers appreciated property to a charitable remainder trust, the trust will be able to sell the property and reinvest the full proceeds in property that will fund annuity or unitrust payments. In addition, the taxpayer will receive an income tax deduction in the year of creation equal to the present value of the charity's right to receive the trust property at the end of the trust. Note, however, that if a taxpayer creates a CRT at death, the taxpayer's estate will not be entitled to an income tax charitable deduction.

CRTs are divided into two major categories: charitable remainder annuity trusts ("CRATs"), which pay a fixed dollar amount annually to the noncharitable beneficiary, and charitable remainder unitrusts ("CRUTs"), which pay a variable amount annually equal to a fixed percentage of the value of the trust's assets as recalculated each year as of a specified date.

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