An arrangement in which property or money is donated to a charity, but the donor (called the grantor) continues to use the property and/or receive income from it while living. The beneficiaries receive the income and the charity receives the principal after a specified period of time. The grantor avoids any capital gains tax on the donated assets, and also gets an income tax deduction for the fair market value of the remainder interest that the trust earned. In addition, the asset is removed from the estate, reducing subsequent estate taxes. While the contribution is irrevocable, the grantor may have some control over the way the assets are invested, and may even switch from one charity to another (as long as it's still a qualified charitable organization). CRTs come in three types: charitable remainder annuity trust (which pays a fixed dollar amount annually), a charitable remainder unitrust (which pays a fixed percentage of the trust's value annually), and a charitable pooled income fund (which is set up by the charity, enabling many donors to contribute).
A charitable remainder trust is a way to "have your cake and eat it, too". You create a trust, donate property to that trust, and the trust makes regular payments to you or someone you designate. You choose the payout rate. (No less than 5%; not more than 50%). A charitable remainder trust can be an excellent way to convert non-income producing investments to income-producing, to minimize capital gains taxes on appreciated property, and to supplement your income, as well as creating a legacy. The tax laws provide income, capital gains, and estate tax benefits for establishing a charitable remainder trust.
The terms in years for a charitable remainder trust cannot exceed 20 years.
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