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Charitable Remainder Trust

Charitable Remainder Trust (CRT)

In 1969, the U.S. Congress created a new type of trust that helped charities and not-for-profit organizations generate more revenue for their causes. Charities serve another purpose: they help wealthy Americans reduce their tax bill. To put it simply, you transfer assets now, receiving a charitable deduction for a portion of the transfer, and you and/or a beneficiary receives income for the rest of your life or a fixed period of time. During your lifetime you receive a set percentage of income from the charitable trust no less than 5% in income payments annually.  Once you pass away, the charity then receives whatever is left over.

In the past decade, this trust has been steadily gaining in popularity. This vehicle allows taxpayers to reduce estate taxes, eliminate capital gains, claim an income tax deduction, and benefit charities instead of the IRS.

This type of trust is technically a Charitable Uni-Trust, but is more commonly known as a Charitable Remainder Trust (CRT).

The amount of income paid out each year during the life of the trust depends on whether it is a charitable remainder annuity trust or a charitable remainder unitrust. When setting the payout percentage, be aware that the higher the interest rate, the lower your charitable income tax deduction. Considering market conditions and the possibility that taking out too much money may reduce the principal inside the trust.

Charitable Remainder Annuity Trust

A charitable remainder annuity trust provides a fixed dollar with each payment to the the beneficiary. This amount corresponds to a percentage of the original investment paid out annually. For example, a $100,000 charitable remainder annuity trust might pay out 7.5% annually. In this situation, the beneficiary would receive $7,500 each year for the lifetime of the beneficiary or for a fixed period of years. The $7,500 may be paid once a year or in several installments throughout the year.

Charitable Remainder Unitrust

The amount paid annually to the beneficiary of a charitable remainder unitrust is a fixed percentage of the fair market value of assets, as determined each year. For example, a charitable trust unitrust may payout 5.5% annually. If the assets were valued at $100,000, the beneficiary would receive $5,500 that year (5.5% of $100,00). If the assets were valued at $125,000 the next year, the beneficiary will receive $6,875 (5.5% of $125,000). As with charitable remainder annuity trust, the payments may be made in one lump sum each year, or in several installments throughout the year.

Deduction on Charitable Donations

Feel free to call us anytime so that we can can help you in this process. These calculations are confidential and will not be retained by our company.

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