Charitable Remainder Trusts and Charitable Giving

What is a CRUT?

• CRUT is an acronym for Charitable Remainder Unitrust.

• A CRUT is a type of irrevocable trust.

• A CRUT is an estate planning device that allows you to maintain a steady stream of income without paying capital gains tax.

• During the donor’s life, the donor or their beneficiary draws income from the trust.

• Once the beneficiary (donor or other) passes, the remainder goes to the donor’s named charitable cause.

• Savvy attorneys use this irrevocable trust to enable their clients to donate funds to colleges or universities while simultaneously reducing their tax liability.

How a CRUT Works.

• • First, the donor transfers assets (cash, property, other) into an irrevocable trust.

• • The trust’s basis remains the same as if it were still in the donor’s hands.

• • The trust pays to one or more beneficiaries during one or more beneficiary’s lifetime up to 20 years from the trust’s inception.

• • At the end of the payment term (20 years or the death of the beneficiaries), the remainder passes to the named charitable organization(s).

• • The remainder must equal 10% or more of the initial fair market value of the trust’s assets.

How to Set Up a CRUT.

1. Have your estate planning attorney create a CRUT.

2. Ensure that your named charity is approved by the IRS.

3. Transfer your property, cash, or other assets into the irrevocable trust.

4. Designate the named charity as the trustee of the CRUT.

5. Name the lead beneficiary, which can be the donor or other named individual.

Example of CRUT.

An older couple decides to sell their vacation home so they can have more liquid assets and to avoid the cost of upkeep on the home. To avoid capital gains tax, their attorney recommends a CRUT. Here’s what they do:

• The couple names the university at which they met as the CRUT’s remainder beneficiary.

• They donate the home to a CRUT.

• The trustee sells the home.

• The couple pays no capital gains because the trust is tax-free.

• The trustee invests the proceeds of the home.

• The couple receives a significant charitable income tax deduction.

• The couple draws an annual income of 5% of the fair market value of the trust assets. The value is reassessed on an annual basis.

Sound Interesting?

If you’d like to discuss the use of a CRUT or have any other estate planning questions, our SGW attorneys are ready to assist you.

Contact us today at 609-409-3500