Family Protection

Charitable Giving Trust

What Is a Charitable Remainder Trust?

A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity. This is a “split-interest” giving vehicle that allows a trustor to make contributions, be eligible for a partial tax deduction, and donate remaining assets.

KEY TAKEAWAYS

• A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals.
• A charitable remainder trust disperses income to the trust beneficiaries for a specified period and donates the remainder to the designated charity.
• A charitable remainder trust allows a trustor to make contributions, be eligible for a tax deduction, and donate a portion of the assets.

Understanding Charitable Remainder Trust

A central idea of a charitable remainder trust is to reduce taxes. This is done by first donating assets into the trust and then having it pay the beneficiary for a stated period of time. Once this time-frame expires, the remainder of the estate is transferred to the charities deemed as beneficiaries.

Charitable remainder trusts are irrevocable. This means that they cannot be modified or terminated without the beneficiary’s permission. The grantor or trustor, having transferred assets into the trust, effectively removes all of her rights of ownership to the assets and the trust upon creation of its irrevocable status. In contrast, a revocable trust allows the grantor modifications.

This charitable giving strategy also enables people to pursue philanthropic goals while still generating income. In addition to tax management, charitable remainder trusts can offer benefits for retirement and estate planning.