Planned Giving Arrangements--Charitable Remainder Trusts

In a previous blog, we introduced the concept of ‘planned giving’.  There are many reasons that your nonprofit organization or church should know about planned giving and how it can benefit your mission while serving your donors/members.  This is one in a series of articles discussing the ‘tools’ of planned giving. 

 A Charitable Remainder Trust (CRT) is a very popular instrument widely-used by charitable organizations.  This arrangement is typically used by a donor who has some highly-appreciated asset(s).  The donor would like to give the assets to a specific charity, but needs to retain potential income from the assets for himself or someone else.

 The donor creates the CRT and appoints a trustee, which may be the donor himself.  The highly-appreciated assets are placed in the trust and then sold.  Two types of beneficiaries are named – an income beneficiary (this can be more than one) and a remainder beneficiary.  The remainder beneficiary must be a charitable organization and again more than one remainder beneficiary may be named.

 The trust pays an annual distribution to the named income beneficiary.  The amount is pre-determined in the trust agreement.  This annual payout can be for the life of the named individual or for a set period of time, up to 20 years.  The payout can be a set amount (annuity trust) or a percentage of the assets of the trust when the payment is made (unitrust).  If it is a ‘unitrust’ the distribution can increase or decrease annually depending on how well the trustee manages the assets in the trust.

 Upon the death of the income beneficiary(ies), or when the designated number of years for the life of the trust passes, the amount left in the trust is given to the named beneficiary. 

 There are several significant advantages for the donor to create this type of trust.  For one, the donor avoids taxation upon the sale of the assets by having placed them in the trust before the sale.  Then, the donor receives a charitable deduction the year the trust is initiated.  The amount of the deduction is basically the present value of the amount the charity is likely to receive from the trust when it is terminated.  That amount depends on factors such as the annual distribution and the expected term of the trust.

 Another great advantage for the donor is that his/her low-income, highly appreciated assets are now in a position to earn a higher income without the donor being hit with capital gains tax for the sale of those assets.

 Individuals with non-income-producing property find this to be an attractive option.  Also, an individual who owns stock that has a low or no dividend may be interested in considering the advantages of a CRT.

 As you can imagine, a CRT must comply with guidelines established by the IRS, but they have great flexibility for the benefit of a donor who chooses to employ this strategy.  An individual will need the assistance of an attorney to create this instrument, but most attorneys are knowledgeable about them.  They usually can be created at a reasonable cost.   

 A Charitable Remainder Trust is an important part of many people’s estate planning.  They can be created during a person’s life or created upon his death as a part of his estate settlement.  The main point is that many of your organization’s donors would benefit from this very versatile, helpful instrument. 

 Some of the greatest bequests to charitable organizations come from Charitable Remainder Trusts.  It is especially gratifying for an organization to realize they will benefit from a devoted donor because they helped that donor meet a very real need in their life.