Charitable Remainder Trust (CRT)
A charitable remainder trust is a trust that pays the donor (and/or another beneficiary) either a fixed or variable income for the beneficiary's life (or for a fixed term not to exceed 20 years). When the trust term expires, the remainder is then distributed to a charitable beneficiary. Charitable remainder trusts offer a great deal of flexibility. Payments may be made to the donor for life and then directed to another income beneficiary after death. A charitable remainder trust may be set up during one's lifetime or may be established by a will. The eventual distribution to the CFGC will take effect only after the death of the trust's income beneficiaries.
Benefits of a Charitable Remainder Trust:
Charitable remainder trusts do not pay ordinary income tax. The
income distributed to individuals is normally taxable to the income
recipients. The remainder is held for charitable purposes.
If donors place highly appreciated securities in the trust, the trustee can sell them without having to pay the capital gains tax realized on the profits of the sale. Low-yielding stocks can be sold and the proceeds reinvested to produce higher income for the income beneficiary.
Other benefits include professional management of the assets in the trust and a degree of financial protection.
An Example
Charitable Remainder:
Sally Smith, age 66, recently retired with company stock valued
at $45,000. The stock, now valued at $105,000, yields annual dividends
of $2,500. Sally would like to increase her retirement income by
reinvesting in high yielding securities, but if she sells the stock,
she will have to pay capital gains tax.
If she sets up a CRT she can increase her annual income without incurring capital gains tax.
Sally receives an income tax deduction the year she sets up the trust and transfers the stock from her estate reducing potential estate tax.
