Broker Check

Charitable Remainder Trusts

June 06, 2022

A Charitable Remainder Trust (CRT) is a type of trust that allows an individual to make an irrevocable gift of cash or other property to a trust controlled by a trustee.  Typically, a taxpayer would donate cash or appreciated property to such a trust and claim an income tax deduction in the year of the donation. In exchange for the donation, the income beneficiary of the trust will receive an income stream for a specified period or the lifetime of the beneficiary. Then, upon the beneficiary’s passing, the remaining balance of the trust is donated to the designated charity.

CRTs can be very effective estate planning and tax planning tools as they allow the taxpayer to receive an immediate tax deduction, current income stream, and charitable donation. CRTs can be even more effective when donating highly appreciated property, such as stock or real estate, as the capital gains taxes are avoided when sold in the irrevocable trust. Therefore, the donor may receive a double benefit of avoiding capital gains taxes and receiving a tax deduction for the donation.
Since the property is transferred to an irrevocable trust, the gift is irrevocable, meaning the donor will no longer have access to the money once transferred. It is also important to understand the limits on the amount that can be claimed as a tax deduction and the tax implications of the annual income paid by the trust.