Charitable Remainder Trust (CRT)

What is a Charitable Remainder Trust (CRT)?

An agreement through which a donor transfers cash or property to a tax-exempt CRT (a separate legal entity created by the donor). The trustee (manager) of the CRT sells and invests the CRT assets and makes payments to the donor or other beneficiaries named by the donor for lifetime or for a term of years. When the CRT terminates, assets remaining in the trust are transferred to benefit the church or other Christian ministries designated by the donor. The MBF may serve as trustee of a CRT providing asset management and trust administration.

The Need

A donor desires to change appreciated property that produces little or no income into a productive asset without paying capital gains tax on the sale of the property.

The Solution

Donor contributes appreciated property to a CRT that will sell the property tax free and make payments to the donor.

The Benefits

Bypass Gain – The CRT sells property tax free.

Increased Income – The trust pays a percentage of its value to the trust beneficiary. A CRT may have multiple beneficiaries such as donor and spouse or children/grandchildren.

Tax Deduction - Donor receives a federal income tax deduction.

The Donor

A person with cash or appreciated property having a value of at least $100,000 who desires income and bypass of capital gains.

The Details

Duration – A CRT can last for the lifetime of one or more beneficiaries or for a specified term of years.

Annuity vs. Unitrust Payout – A Charitable Remainder Annuity Trust (CRAT) pays a fixed dollar amount each year.  By contrast, a Charitable Remainder Unitrust (CRUT) pays an amount equal to a fixed percentage of the trust value at the beginning of each year.

Taxation of Payments – Most CRT payouts are taxed to the beneficiary as ordinary income and/or capital gain.  In some instances, tax-exempt income or tax-free return of principal may be made.

Payout Flexibility – A Unitrust (CRUT) can offer four flexible payout options that may fit family situations such as retirement planning, financing college, care for dependents, and investment management of an inheritance. 

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