Charitable Trusts are another way to engage in charitable giving. The types of trusts discussed today have significant tax benefits and include the Charitable Remainder Annuity Trust (CRAT), Charitable Reminder Unitrust (CRUT) and Charitable Leads Trust. The first two trusts, CRAT and CRUT, allow you to provide a remainder interest to a charitable organization while you continue to benefit during your lifetime from the asset to be transferred. These trusts are considered split interest trusts. They have both charitable and non-charitable beneficiaries.
The Charitable Leads Trust is also a split interest trust. However, it is the reverse of the CRAT and CRUT. The Charitable Leads Trust pays income first to the charity for a term of years and then the remainder amount is paid back to you or, if the trust is established after your death, to your beneficiaries. This means that the charity gets paid first and then the non-charitable recipient. Therefore, the charity leads the non-charitable recipient. That is why this particular trust is referred to as a Charitable Leads Trust.
The use of CRAT, CRUT and Charitable Leads Trust offer financial advantages to you during their lifetime. With the CRAT and CRUT, you, as the non-charitable beneficiary, have the right to receive, at least annually, an annuity or unitrust amount for life or for a term of years (not more than 20 years). At the end of the established term, the remaining assets of the trust are paid to or held for the benefit of charity. If the interest is an annuity interest, then the trust is considered a CRAT. When it is established, you choose the payout rate. The higher the payment to you, the lower the charitable deduction will be for tax purposes. If the interest is a unitrust interest, the trust is considered a CRUT. In the CRUT, the assets are revalued every year to determine the payout rate each year.
Whether you use a CRAT, CRUT, or a Charitable Leads Trust, you should choose appreciating assets to give and place in the trust. Since charities are not taxed, this will avoid a capital gain tax when the asset is sold by the charity. Therefore, for appreciating assets like real estate and stock, you get a charitable deduction during your lifetime and the charity avoids a capital gain tax.
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The Charitable Leads Trust is also a split interest trust. However, it is the reverse of the CRAT and CRUT. The Charitable Leads Trust pays income first to the charity for a term of years and then the remainder amount is paid back to you or, if the trust is established after your death, to your beneficiaries. This means that the charity gets paid first and then the non-charitable recipient. Therefore, the charity leads the non-charitable recipient. That is why this particular trust is referred to as a Charitable Leads Trust.
The use of CRAT, CRUT and Charitable Leads Trust offer financial advantages to you during their lifetime. With the CRAT and CRUT, you, as the non-charitable beneficiary, have the right to receive, at least annually, an annuity or unitrust amount for life or for a term of years (not more than 20 years). At the end of the established term, the remaining assets of the trust are paid to or held for the benefit of charity. If the interest is an annuity interest, then the trust is considered a CRAT. When it is established, you choose the payout rate. The higher the payment to you, the lower the charitable deduction will be for tax purposes. If the interest is a unitrust interest, the trust is considered a CRUT. In the CRUT, the assets are revalued every year to determine the payout rate each year.
Whether you use a CRAT, CRUT, or a Charitable Leads Trust, you should choose appreciating assets to give and place in the trust. Since charities are not taxed, this will avoid a capital gain tax when the asset is sold by the charity. Therefore, for appreciating assets like real estate and stock, you get a charitable deduction during your lifetime and the charity avoids a capital gain tax.
Leave your comment here or contact us at http://www.ythlaw.com/
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