Donald M. Thompson - Wills, Trusts, and Estate Planning


Charitable Remainder Trust (CRT)

These trusts allow gifts to be made to charity while the donor retains the income from the assets. Ordinarily if the creator of a trust retains the income from it he or she is the owner for both income and estate tax purposes. Special rules allow different treatment for CRTs if they are set up according to the rules.

The rules allow charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). The CRAT pays a set annual payment to one or more non-charitable beneficiaries for a set term of years or the life or lives of the beneficiaries. After that a charity gets the trust assets .

The CRUT is similar except the amount paid to the beneficiary is a set percentage of the value of the trust assets at the time of payment.

Valuation of the remainder is calculated according to tables provided by IRS. The grantor can select the terms of years and the percentages to pay. At the time of creation of the trust the value of the remainder must be at least 10% of the value of the trust assets.

Income of the trust is not taxable. Distributions to the non-charitable beneficiaries are taxable to them. The grantor gets an income tax deduction for the present value of the gift of the remainder interest to charity and the assets are outside the grantor's estate. Any gift tax liability is offset by a gift tax charitable deduction.

CRTs allow a grantor with appreciated assets to convert them to cash by a sale and avoid capital gains taxes. The grantor can then get income from the total value of the sale proceeds, not just the after tax amount. The grantor can do this by contributing the appreciated assets to the trust which then sells it. Since trust income is not taxable, the trust can reinvest the entire proceeds to produce income for the grantor.

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Donald M. Thompson * 55 W. Monroe #3950; Chicago, IL 60603
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