Charitable Gifting - Charitable Remainder Trusts

A charitable remainder trust is one where the income beneficiary gets income for life and a charity is the remainderman.

Charitable Remainder Annuity Trust (CRAT)
Charitable Remainder Unitrust (CRUT)
Gift Tax Consequences
Estate Tax Consequences
Federal Income Iax Consequences
Advantages of Charitable Remainder Trusts

Charitable Remainder Annuity Trust (CRAT)

A charitable remainder Trust that pays an annuity to the income beneficiary(ies) of either a specific dollar amount or apercentage of the initial fair market value of the Trust for the beneficiaries’ life or a term certain of not more than 20 years. The payment amount must not be less than 5% of the initial fair market value of the trust.

Charitable Remainder Unitrust (CRUT)

A charitable remainder Trust that pays a fixed percentage of its fair market value at least annually to the incomebeneficiary(ies) for the beneficiaries’ life or a term certain of not more than 20 years. The payment percentage must be as least 5%.

Gift Tax Consequences

An intervivos remainder interest is valued according to IRC Section 7520 and Notices 89-24 and 89-60 and depends on whether the income interest is in the form of an annuity trust or a unitrust for gift tax purposes. A gift tax is due on theincome interest. The annual gift tax exclusion is available on the income interest if it is an immediate and at least annual payout.

Estate Tax Consequences

A testamentary remainder interest is valued as of date of death (or alternate valuation date). A charitable deduction is available for the remainder interest. If the income interest goes to the spouse, a marital deduction may be taken. If theincome interest goes to a beneficiary other than the spouse and the unified credit is unavailable to cover the income, federal estate tax will be payable.

Federal Income Iax Consequences

The value of an intervivos remainder interest is currently deductible on the grantor’s income tax return subject to certain restrictions set out by IRC Section 170 relating to deductability of charitable contribution.

Advantages of Charitable Remainder Trusts

A charitable remainder Trust accomplishes a grantor’s goal if he/she wants to benefit another person for their life or a term certain and also benefit a charity.
 
 
 

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