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What is a Charitable Remainder Trust?

Are they used in lieu of a "regular" trust? If so, what are the differentiating factors between the two?

Feb 23, 2012 by Ryder from Pensacola, FL in  |  Flag
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Hello Ryder. Great question. A Charitable Remainder Trust is a tax advantaged way of leaving funds to a charity at your death. You irrevocably place money into this trust, the trust makes lifetime income payments to you from the principal, and when you pass, whatever remains goes to the designated charity. Since the decision to have the proceeds go to a charity is irrevocable, you get a tax deduction today for today’s value of the anticipated remainder going to charity. Depending on your age and income schedule agreed to, you may very well see a current tax deduction up 30-60% of the deposited amount.

When estates have more funds than they need, we may often suggest they establish this type of trust. They then can use the monthly income stream from the trust to acquire a guaranteed life insurance policy for their family to replace the gift to charity. There are many wins in doing this. The charity gets a benefit and the family still gets the value as well. And for the family share, if structured correctly, the replacement funds from the life insurance can be structured to be OUTSIDE of the estate and not subject to estate taxes. So you’ve taken an asset that was a part of the estate, given it to charity, and yet replaced it for the family free of estate taxes.

The caveat – it is irrevocable, so it cannot be undone once done. Whereas “regular” trusts, most often referred to as Revocable Living Trusts, are revocable and can be undone. If doing the charitable trust, make sure it is with assets your will not need, or at least can utilize the income and be satisfied with that. Hope this helps.

1 Comment   |  Flag   |  Feb 23, 2012 from East Dundee, IL
Heath Harold Hamrick

Another way to use the Charitable Remainder Trust is to set one up in your Last Will and Testament that pays an income stream to beneficiaries you choose for a certain time period and then passes the remainder to Charity. In this case the trust is Irrevocable after death but can be changed up until that time by redoing the Will.

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Flag |  Jun 02, 2012 near Abilene, TX

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