Skip to content

News & Resources

September 12, 2013

What are Charitable Remainder Trusts?

Charitable remainder annuity trust (CRAT)

A charitable remainder annuity trust, or CRAT, is a trust with both charitable and noncharitable beneficiaries. Every year for the term of the CRAT, the noncharitable beneficiary receives a payment (the annuity amount) from the trust property. At the end of the trust term, the remaining property passes to the charity. For this reason, the charity'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

Charitable remainder unitrust (CRUT)

A charitable remainder unitrust, or CRUT, is a trust with both charitable and noncharitable beneficiaries. Every year for the term of the CRUT, the noncharitable 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 the charity. For this reason, the charity'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

Prequisites

  • A desire to donate to charity
  • A substantial asset to donate to charity

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

Variations from state to state

  • Community property states may affect any gift tax due

How are they implemented?

  • Consult a legal professional to draft the trust
  • Select a noncharitable beneficiary, a charitable beneficiary, 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 CRUTs
  • Select an appraiser to value unmarketable assets


      IMPORTANT DISCLOSURES This information has been prepared by Broadridge Investor Communication Solutions, Inc. Minis & Company (“Minis”) does not endorse the content provided, it is to be viewed for informational purposes only. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investments involve risk and an investor may incur a profit or a loss. Services and products offered through Minis and its affiliates are not insured by the FDIC, not a deposit or obligation of, or guaranteed by, the depository institution and are subject to risks including the possible loss of principal amount invested. Past performance does not guarantee future results. Prices and yields quoted are subject to change. Minis, its affiliates and subsidiaries, or its officers and employees may from time to time acquire, hold or sell securities or other derivatives related to such securities mentioned herein.

      « Back to List of News