A CRT is an irrevocable “split-interest” trust.
Are you looking for an extra income stream upon retirement? Do you want to leave something behind for charity and save on your tax bill now and when you die? If the answer is yes, a charitable trust may be for you.
A CRT is an irrevocable “split-interest” trust that provides you and any designated beneficiaries with income for a specified number of years (maximum 20) or for the rest of your or a beneficiary’s life, with the remaining assets being donated to charities.
Between 5% and 50% of the trust’s assets must be distributed at least annually, but 10% or more of the CRT’s initial value must ultimately go to charity.
There are two types of CRTs. With a charitable residual annuity trust, or CRAT, a fixed amount is paid each year to you or beneficiaries who are not charitable organizations. Once you have set up a CRAT, you cannot contribute to it later.
With a charitable remainder unitrust, or CRUT, distributions are based on a fixed percentage of the value of the trust, which is reassessed annually. You can also put more into a CRUT after it has been created. Both types of CRTs have tax benefits.
According to Jim Ferraro, vice president and trustee of Argent Trust Co., CRTs are primarily a “tool for lowering estate taxes for people who are charitable”. That’s because assets contributed to these trusts are generally not included in your estate upon your death. If they are not part of your estate, they are not subject to federal estate taxes.