What is a Charitable Remainder Trust?

The master commended the dishonest manager because he had acted shrewdly. For the people of this world are more shrewd in dealing with their own kind than are the people of the light. I tell you, use worldly wealth to gain friends for yourselves, so that when it is gone, you will be welcomed into eternal dwellings.  Luke 16:8-9 (NIV)

What is a Charitable Remainder Trust?

BusinessDictionary.com defines a Charitable Remainder Trust (CRT) as an “arrangement under which a donor receives income (for a fixed period or during donor’s lifetime) from an asset donated to a qualified charitable organization. It is one of the ways you can give. Upon the termination of the trust, the asset reverts to the charitable organization.”  A qualified organization is any organization that qualifies as a charitable entity under the IRS code.  For reference, the Internal Revenue Code § 664 provides the authority for establishing a Charitable Remainder Trust.

Two categories of CRTs

  • Charitable Remainder Annuity Trust (CRAT):  The CRAT pays the donor a fixed percentage (minimum of 5%) of the trust’s beginning value until the trust is terminated.  Once the initial contribution to the CRAT is made, a donor cannot make additional contributions.
  • Charitable Remainder Unitrust (CRUT):  In comparison, the CRUT pays a fixed percentage (minimum of 5%) based on an annual assessment of the trust’s value.  This means that the payout will increase or decrease each year based on total value of the trust.  The CRUT also allows you to make additional contributions after the trust is created.   There are four types of CRUT’s that include: a standard unitrust, a net income unitrust, a net income with makeup unitrust and a flip unitrust.
Assets that can be donated into a CRT include cash, real estate, publicly traded securities, closely held stock, art, antiques, collections, or even royalties.  Typically, the trustee will sell the asset and reinvest the proceeds for continued growth.

Who Should Consider a Charitable Remainder Trust?

In general a CRT is beneficial to someone 50 years or older that:
  • Falls within a higher income bracket
  • Owns a highly appreciated asset
  • Can benefit now with income from the asset
  • Desires to avoid capital gains and estate taxes
  • Wants to bless a ministry, church or non-profit with a larger gift

An Example of a Charitable Remainder Unitrust

Here’s an example of how a CRUT can work.  George and Sue purchased stock 25 years ago for $25,000 and today it is worth $250,000.  Assuming George and Sue fall into the 15% tax bracket, if they sold the stock they would incur a capital gains tax of $33,750, leaving only $216,250 to reinvest.
If they chose to donate the stock to a CRUT held by a church, ministry or qualified non-profit, with a 10% payout rate, it would allow them to receive $25,000 (10% of $250,000) the first full year of the trust.  That annual pay-out would increase/decrease based on the overall value of the trust assessed each year.  George and Sue take will also take a significant income tax deduction that can be spread out over a five year period.

Setting up a Charitable Remainder Trust

Charitable Remainder Trusts are fairly complicated to set up so you should involve the appropriate and trusted legal, tax and financial advisors in your life.  It’s important to note that a CRT is irrevocable, which means once it’s set up it cannot be terminated until the trust expires or death.

Other Details to Consider

  • Annuity Payment:  The payout percentage to the donor can be no less than 5 percent and no greater than 50 percent of the fair market value of the assets within the trust.  The payout must be received by a non-charitable beneficiary and can no longer than 20 years by law.   The beneficiary of the annuity payment is typically subject to income taxes.
  • Tax Deduction:  The actual tax deduction a donor can take is an IRS formula based on the age of the donor, the age of the payout recipient, the payout percentage and an IRS index rate.
  • Present (or remaining) Value:  The present value of the remaining interest within the trust must be equal to 10 percent or more of the assets transferred to the CRT.
  • Transfer of Remaining Interest:  Once the term of the annuity expires (at death or expiration of terms) the remaining assets are transferred to the church, ministry or non-profit.
  • Gift Minimums:  There are typically gift minimums based upon your age.
  • Fees:  You will incur set up fees for the CRT as well as ongoing administrative fees to maintain the trust.

Putting Your Wealth to Work for the Kingdom

Matthew 6:34 says, “No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.”  A good question to regularly ask ourselves is, “how am I using what God has given me to serve Him?”  Another question to consider is, “do I own and steward my stuff or does my stuff own me?”

The Charitable Remainder Trust is just one way for you to serve God using the wealth He has given you.  You can generously provide an asset for a church or ministry vision that can grow over time and reap the benefit of subsidizing your annual income.

Have you been involved with a charitable remainder trust?  Have a question?  Leave a comment below!



This article is provided with the understanding that Chris McDaniel is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

2 comments:

  1. Chris,

    I appreciate the simple explanation. I work in fundraising and have dealt with a few CRT's. Here is my question:
    Most donors are not familiar with the concept of a CRT or any planned giving vehicle for that matter. How do skillfully present gift planning options?

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    1. Drew, thank you for taking time to write and for the question. I wrestle with this as well, but here are two recommendations. Consider a quarterly write-up in your newsletter that focuses on planned giving, whether from you personally or sharing an article written by someone else. This helps set the tone for other ideas. Another idea is to find a local financial advisor, lawyer or estate planning expert and partner with them to provide free "information only" meetings where your givers can come without pressure but to ask pressing questions and learn. Serve food and refreshments. You could do this regularly, like once or twice a year and use an invitation with an RSVP to invite folks. The key is gaining trust and then allowing God to move the hearts of people.

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