What Is A Charitable Remainder Trust?
A Charitable Remainder Trust (CRT) is a Trust arrangement which provides that an annual payout will be made to the donor for their lifetime or for a term of years that has been specified. The benefit to charity is delayed with a CRT because of the interest reserved for the donor. Once the Trust ends, then one or more qualified charities chosen by the donor will receive the assets held in the Trust.

How Much Will My Annual Payout Be?
Your annual payout is selected by you at the time the Trust is created. The minimum percentage selected must be at least 5%. The maximum allowable percentage depends on your age or the term of the Trust. The annual payout in a CRT can take one of two forms . . .

  • Annuity Payment. With an Annuity Trust, a specified percentage of the value of the assets originally placed in the Trust is paid each year to the donor or other non-charitable beneficiary. The amount of the payment does not vary, even if the value of the assets in the Trust increases or decreases.
  • Unitrust Payment. The Unitrust amount is a specified percentage of the value of the assets in the Trust, as computed on January 1 of each year. The amount paid each year can vary. It depends upon the value of the assets in the Trust on the first day of each year. An important point to consider when selecting the payout percentage is that if you select a higher rate, it is more likely that the value of the Trust assets will decrease in value, resulting in a decreasing annual payout amount.

    Whether the income interest is paid in an Annuity form or a Unitrust form, the minimum percentage selected by the donor must be at least 5%.

Do Charitable Remainder Trusts Provide Tax Advantages?
Yes. With a CRT, there is a charitable deduction for the donor. This deduction is based upon the value of the remainder interest which passes to charity. Since there is an interest reserved for the non-charitable beneficiary, the value of the deduction is less than the actual value of the property placed in the CRT. The value of the charitable deduction is computed based upon guidelines in the IRS tax code.

If the CRT is created during the donor's lifetime, the charitable deduction can be used by the donor as a deduction against the donor's taxable income. Also, in the instance in which the donor is the lifetime beneficiary, when the CRT ends and the Trust assets pass to charity, there are no death taxes due on the assets in the CRT.

When Should I Use A Charitable Remainder Trust?
If an appreciated asset such as stock or real estate is given to charity, prior to sale, it will yield a charitable deduction based upon the current fair market value of the asset. The gift will avoid the capital gain tax. By giving an appreciated asset to a CRT, the donor will receive a payout based on the full value of the property placed in the CRT, without any reduction for taxes that otherwise would have been paid if the property were sold by the donor and the net after-tax proceeds were invested.


Example Of An Appreciated Asset Gift

An individual owns a parcel of land originally purchased for $25,000 (tax cost basis). It is now worth $100,000. Here is a comparison of the tax and income results of a sale versus a gift to a CRT . . .

                                             

n addition to the increased income, the donor receives tax savings in the year of the gift from the charitable deduction. If the deduction cannot all be used in one year, it can be used as a deduction for up to five additional years.


Can I Provide For My Children With A CRT?
An alternative to establishing a CRT during the donor's life is to provide an income interest for children or grandchildren after the donor's death through the use of a CRT. This type of gift can be utilized to reduce the death taxes in the donor's estate while providing an income to family members on a portion of the donor's estate.

How Can I Use Barnabas Foundation As A Trustee?
Some forms of charitable giving are too complex for many local Christian organizations to handle effectively. In other cases, the charity's organizational structure may preclude it from making a distribution to charities other than itself. CRTs are highly technical instruments which require strict adherence to tax accounting and reporting requirements. They are generally funded with substantial assets which require expertise in managing. This often places them beyond the administrative ability of local charities. Barnabas Foundation is qualified to act as trustee in these more complex gift situations.

How Can I Use Barnabas Foundation As A Giving Channel?
We do not seek to be the recipient of individual charitable gifts. However, since Barnabas Foundation has 501 (c)(3) non-profit status, many people desire to use us as a flexible channel for the charitable gifts they wish to make. In such instances, a donor names Barnabas Foundation as the charitable beneficiary of a CRT. When the Trust terminates, Barnabas Foundation distributes the Trust assets among the charitable organizations which the donor had designated.

During the term of the CRT, the donor has the flexibility to add or remove charities or to change the percentage amounts among the charities which will ultimately receive the assets in the CRT. The donor can make these changes by merely providing Barnabas Foundation with written instructions. The charitable gifts will be distributed to qualified charities based upon the last written instruction of the donor.

IMPORTANT NOTE:

Creating and funding a Charitable Remainder Trust may provide you with significant advantages. However, there is no single investment or planning program which is right for everybody. The decision of whether a CRT "fits" must also take into account your other planning needs and goals.

Keep in mind these facts about Charitable Remainder Trusts:
  • Your gift is irrevocable. Once the gift is made you will receive payments each year but the initial gift cannot be returned to you.
  • Only a portion of the initial gift is tax deductible since you have reserved an annual payout from the Trust.
  • Rates used in examples and illustrations are subject to change.