Charitable Trusts

There exist a number of different options for establishing charitable trusts. Some of the more common charitable trust options are discussed below.

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Charitable Remainder Annuity Trust
A charitable remainder annuity trust (CRAT) is used in a situation where a donor wants to provide a non-charitable beneficiary with a stream of income for a specific time period or number of years (up to a maximum of 20 years). The annual income stream must be at least 5% of the initial value of trust. The recipient receives an income tax deduction from the present value of the remainder interest. Only one initial transfer can be made into the trust and at the termination of the trust, the remainder interest in the trust assets are distributed to a qualified charity, but the remainder interest must be at least 10% of the initial trust value.

Charitable Remainder Unitrust (CRUT)
The charitable remainder unit trust is similar to CRAT with the major difference being that with the CRUT the donor can make additional transfers into the trust after the initial funding of the trust. The other difference is that once the trust is established, a specific amount of income (at least 5%) must be paid out each year as a fixed percentage. The payments can continue for a fixed period of time or until the death of the beneficiary.

Charitable Lead Trust (CLT)
The primary purpose of a charitable lead trust is to reduce taxable income. A portion of the trust's income initially is donated to charity and then after a specified period of time, the remainder of the trust is transferred to the trust beneficiaries. The advantage is that the beneficiaries usually will have a lower gift tax and estate tax burden.

 

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