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What is a Charitable Remainder Trust?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 November 2016
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    Conjecture Corporation
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Charitable Remainder Trusts are arrangements that make it possible to proceed with the donation of property and assets to a specified charity or non-profit entity, but allow the grantor of the trust to retain and make use of those assets for as long as he or she remains living. Upon the death of the grantor, the assets are transferred in full to the designated charity or non-profit, and may be utilized as the organization sees fit. The donor has the comfort of knowing that the assets will eventually be used by a good cause, and also provides a few excellent financial advantages in the interim.

One of the main advantages of a charitable remainder trust is that grantors can avoid any type of capital gains tax on the assets that are donated through the charity. In the event that the donated assets continue to generate income over the short term, the grantor also can realize a tax deduction for the fair market value of the interest income that is earned on the asset. These provisions help to make it possible for the donor to benefit from their assets for the remainder of their lives, both directly and indirectly.

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Another consideration for entering into a charitable remainder trust is the fact that any assets placed into the trust are not counted as part of the remaining estate. This will mean that the estate taxes that will be applied at the time of death will be reduced significantly. For survivors who inherit the portions of the estate that are not connected to the charitable remainder trust, this benefit can make a huge difference in settling and distributing the remaining assets according to the wishes of the deceased.

One thing to keep in mind about a charitable remainder trust is that the trust cannot be revoked once it is set in place. However, there are some provisions for redirecting the assets from one charity to a different one, assuming that the new charity meets the associated qualifications. Financial planners can help interested persons determine the exact structure and function for the charitable remainder trust, as well as prepare projections on how the trust arrangement would benefit the donor over the long term.

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