Charitable Remainder Trusts

A charitable remainder trust is an attractive planning tool for the disposal of highly appreciated assets. While the assets revert to the charity rather than the heirs of the estate, the use of an irrevocable life insurance trust in conjunction with a charitable remainder trust could replace the asset's value for the heirs.

There are two different types of charitable remainder trusts.

• A charitable remainder unitrust is a popular way to achieve tax benefits as well as a fixed annual percentage on the value of the assets in the trust. The assets are revalued annually and, if the trust value changes, the payment to the beneficiary(ies) changes. Additional contributions can be made by the donor to a charitable remainder unitrust.
• A charitable remainder annuity trust is set up to pay a fixed rate of return based on the initial valuation at the time the property is placed in the trust. The trust assets are never revalued.

A charitable remainder trust is established for the life of the donor (also trustor or grantor) and/or for the life of any beneficiary(ies) and is irrevocable. While there are certain changes that may be made, once the trust is established, it cannot be revoked. If it is desired, the income period of the trust can be established for a specified period of time not to exceed 20 years. The 20-year maximum does not apply if the trust life is based on the life expectancy of the income beneficiary(ies).

A charitable remainder trust is called a split interest trust because the income is paid to one or more parties and, at the end of the trust's life, the principal and any undistributed interest is paid to a different party. The income portion of the trust may be either an annuity income or a unitrust income.

An annuity income is calculated at the time the trust is established in the trust agreement. It is a fixed amount of dollars based on the then market value of the trust. If the assets of the trust go up in value, the income portion does not change. See an example of a charitable remainder trust.

With a unitrust, the assets of the trust are revalued annually, and the percentage rate established in the trust agreement determines the dollar amount of the unitrust interest. If the value of the principal in the unitrust declined, the value of the interest portion of the unitrust would decline as well. The unitrust interest value would increase if the value of the trust assets increased.

Planned Giving Home Page | Planned Giving Site Map | Contact Us | Frequently Asked Questions | Glossary

Please note that individual financial circumstances will vary. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only.