Charitable Remainder Trust

Common Elements of Charitable Remainder Trusts
1. Trust is funded by you
2. Income to you
3. Remainder goes to charity

Prerequisites
- A desire to donate to AARF PA
- A substantial asset to donate to AARF PA

Key Strengths
- Provides income tax deduction
- Provides an income tax haven for assets that have appreciated substantially
- Reduces potential federal estate tax liability


Key Tradeoffs
- Requires an irrevocable commitment

How does it vary from state to state?
- Community property states may affect any gift tax due

Why use a charitable remainder trust?


A charitable remainder trust takes advantage of the fact that lifetime charitable giving generally results in tax savings when compared to testamentary charitable giving.  A donation to a charitable remainder trust has the same estate tax effect as a bequest because, at your death, the donated asset has been removed from your estate.  Be aware, however, that a portion of the donation is brought back into your estate through the charitable income tax deduction.

Also, a charitable remainder trust can be beneficial because it provides your family members with a stream of current income—a desirable feature if your family members won’t have enough income from other sources.

There are two types of charitable remainder trusts:

How are they implemented?

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- Consult a legal professional to draft the trust
- Select a non-charitable beneficiary, a charitable beneficiary (AARF PA), and a trustee
- Select the assets you want to use to fund the trust
- Set the term of the trust and establish the annual payment amount for CRATs or the percentage of trust assets that are to be paid out every year for the CRUTs
- Select an appraiser to value unmarketable assets

Charitable Remainder Unitrust (CRUT)

A Charitable remainder unitrust, or CRUT, is a trust with both charitable and non-charitable beneficiaries.  Every year for the term of the CRUT, the non-charitable beneficiary receives a payment (the unitrust amount) from the trust property, which is based on the value of the trust assets each year.  At the end of the trust term, the remaining property passes to AARF PA.  For this reason, AARF PA’s interest is described as a remainder interest.

Unique Strengths
- Allows for the additional contribution of assets
- Allows annual payment to increase when value of trust property increases

Unique Tradeoffs
- Involves more complicated administration
- Annual payment may decrease when value of trust property decreases

Charitable Remainder Annuity Trust (CRAT)


A charitable remainder annuity trust, or CRAT, is a trust with both charitable and non-charitable beneficiaries.  Every year for the term of the CRAT, the non-charitable beneficiary receives a payment (the annuity amount) from the trust property.  At the end of the trust term, the remaining property passes to AARF PA.  For this reason, AARF PA’s interest is described as a remainder interest.

Unique Strengths
- Pays out fixed income every year
- Exists with fairly simple administration

Unique Tradeoffs
- Requires the annuity to be paid each year, regardless of whether there is sufficient trust income available
- Inflation may cause CRAT to lose some of its value
- Prohibits the additional contribution of assets