One Trust, Many Benefits: How a Charitable Remainder Trust Can Elevate Your Estate Plan

For many individuals, estate planning often involves balancing two key priorities: supporting cherished charitable causes and providing for loved ones in a tax-efficient way. A Charitable Remainder Trust (CRT) offers a unique solution that allows you to pursue both goals simultaneously.

Understanding CRTs

A CRT is a type of irrevocable trust designed to distribute income to designated beneficiaries—such as yourself, your spouse, or another family member—for life or a fixed term (up to 20 years). After the income period ends, the remaining assets are transferred to one or more charitable organizations of your choosing.

When you establish a CRT, you may qualify for a current tax deduction. The deduction amount depends on several factors, including:

• The value of the assets you transfer to the trust,
• The ages of the income beneficiaries, and
• The government’s Section 7520 rate at the time of the transfer.

Typically, the higher the income payout to you or your beneficiaries, the lower the charitable deduction.

Choosing Between Two CRT Structures

CRTs come in two main varieties, each with unique features and benefits:

1. Charitable Remainder Annuity Trust (CRAT):
   • Pays a fixed annual percentage (5% to 50%) of the trust’s original value.
   • Does not permit additional contributions after it’s funded.
   • Offers predictable payouts regardless of investment performance.
2. Charitable Remainder Unitrust (CRUT):
   • Pays a fixed percentage (5% to 50%) of the trust’s value, recalculated annually.
   • Allows for additional contributions over time.
   • Provides flexibility, with payouts that may grow if the trust’s value increases, helping to offset inflation.

While CRUTs offer growth potential, one downside is that payouts could decrease if the trust’s value declines.

Appointing the Right Trustee

Choosing the right trustee is critical to the success of a CRT. Your trustee will be responsible for managing the trust’s assets and adhering to its terms. Common options include:

• Professional trustees or institutions: Ideal for complex trusts, they bring financial expertise and impartiality.
• Family members or close friends: This option might work well for simpler trusts but can sometimes create personal challenges.

Many individuals prefer professional trustees due to the financial stakes involved. If you opt for a professional, evaluate candidates carefully, considering factors such as:

• Their experience with trust administration,
• Past investment performance, and
• The breadth of services they provide.

Even with a trustee managing the trust, you can retain some control. For example, you can reserve the right to replace the trustee if you’re dissatisfied or update the charity that receives the remainder assets.

Commitment Required

It’s important to note that a CRT is irrevocable. Once established, you cannot reverse the arrangement. This makes it essential to fully understand the implications and ensure it aligns with your long-term goals.

Is a CRT Right for You?

A CRT can be a powerful estate planning tool, but it’s not a one-size-fits-all solution. By combining tax benefits, an income stream, and a charitable legacy, CRTs can help you achieve multiple objectives. However, they require careful planning and a full commitment.

If you’re considering a CRT, our team is here to help. We can evaluate your financial and estate planning goals to determine if this strategy is the right fit for you. Contact us to start the conversation.

HoganTaylor Estate Planning Services

HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning  Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.