ADDING VALUES TO STRONG PERFORMANCE

Charitable Remainder Trusts

A charitable remainder trust (CRT) is an irrevocable trust that generates a potential income stream for its income beneficiaries, with the remainder of the donated assets eventually going to one or more charitable organizations.

Charitable remainder trusts are typically funded with highly appreciated long-term property. The CRT is structured so that there is a current beneficiary, who is either the donor or a named individual, and a remainder charitable beneficiary, which is a qualified charity. The CRT can provide the income beneficiary with either a fixed amount each year or a percentage of the value of the trust each year, for the income beneficiary’s life or for a period not to exceed 20 years.

The donor establishing the CRT can take a charitable deduction against the income or gift tax for the present value of the trust’s assets that are expected to pass to the qualified charity (the remainder charitable beneficiary).

A charitable remainder trust is exempt from tax on the investment income earned or realized in the trust. Therefore, the trustee can sell assets gifted to a CRT and reinvest the full proceeds. The donor may deem it to be advantageous to contribute a concentrated position (such as closely held stock or business interest) to the CRT so that it can be sold in a tax-efficient manner and allow the donor to diversify his or her personal investments. When distributions are made to the income beneficiary (the donor or other named individual) pursuant to the terms of the trust, the recipient must report a portion of the income and gains with respect to the income distributed from the trust.

Contributions to a CRT made at death under a will can provide for an estate tax deduction, not subject to any percentage limitations, with the value of the remainder interest passing to the charitable remainder beneficiary.

Charitable remainder trusts can be an effective strategy for retirement planning, as the trust can provide income distributions to the current beneficiary that do not commence immediately.

For more information on charitable remainder trusts please contact Jeff Perkins, Executive Director, at 215-241-7272 or jperkins@friendsfiduciary.org.