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Author: Shaina A. Case

A charitable trust allows a donor to set aside assets for one or more charities. Two different types of charitable “split interest” or “mixed” trusts exist: (1) charitable remainder trusts (“CRTs”); and (2) charitable lead trusts (“CLTs”).

The discussion that follows focuses on CRTs, with a subsequent post focusing on CLTs.

Charitable Remainder Trusts. For CRTs, the donor or the donor’s family retains trust benefits until a specified time, at which point the remainder of the trust property passes to the charitable beneficiary. Two types of remainder interests include Charitable Remainder Annuity Trusts (“CRATs”) and Charitable Remainder Unitrusts (“CRUTs”).

CRATs are used when a donor wishes to provide a non-charitable beneficiary with a stream of income to last for a specific time period (i.e., for the life of the recipient or for a fixed number of years). The income stream must represent at least 5%, but not more than 50%, of the original corpus each year. Thus, if the donor creates a CRAT, the non-charitable beneficiary receives the same amount each year regardless of the current value of the trust property or the amount of trust income, with any appreciation in trust asset value ultimately passing to the charitable remainderman’s benefit. The donor can make only one initial transfer of property to the CRAT and there can be no additions or increases to the CRAT in later years. When the time period ends, the remaining trust assets pass to a qualified charity.

CRUTs are similar to CRATs, however, a few primary differences exist. For example, in CRUTs, the donor can make more than one transfer to the trust. Also, once the trust is established, the CRUT must pay out a fixed percentage of trust assets each year of at least 5% but not more than 50%.

Working with an estate planning attorney, CPA, and CFA is a good idea in helping you decide whether a CRT is right for you.