Charitable Trusts

A trust is a legal entity that holds and invests assets on behalf of the trust's beneficiaries. There are several forms of charitable trusts that offer tax and financial planning benefits.

Charitable Remainder Annuity Trust
A Charitable Remainder Annuity Trust (CRAT) provides a fixed annuity (minimum 5% of original value of principal, maximum 50%) for one or more individuals. The trust may last for the lifetimes of the beneficiaries or a term of years (maximum 20 years). When the trust ends, principal passes to one or more qualified charities. Typically, CRATs are funded with appreciated property and/or cash. No additional contributions are permitted to the trust.

Benefits:

• no capital gains recognized upon transfer of appreciated assets to the trust, or upon sale by trustee (Part of beneficiary’s income may be taxed at low capital gains tax rates under the four-tier tax reporting system.)
• receive a charitable income tax deduction equal to the present value of the charity’s remainder interest
• enjoy security of a fixed income

Charitable Remainder Unitrust
A Charitable Remainder Unitrust (CRUT) is a trust in which beneficiaries receive a fixed percentage (minimum 5%, maximum 50%) of the value of the trust assets as revalued every year. Typically, CRUTs are funded with appreciated property and/or cash. Additional contributions are possible.

Benefits:

• no capital gains recognized upon transfer of appreciated assets to the trust, or upon sale by trustee (Part of beneficiary’s income may be taxed at low capital gains tax rates under the four-tier tax reporting system.)
• receive a charitable income tax deduction equal to present value of the charity’s remainder interest
• have greater flexibility to arrange lifetime income with a hedge against inflation
• can structure CRUT to shift income to retirement years and achieve other purposes, including college funds for grandchildren

Charitable Lead Trust
A charitable lead trust is the reverse of a charitable remainder trust. The lead trust pays either an annuity or a unitrust amount to one or more charities during the trust term, with the remainder going to the donor or a named beneficiary or beneficiaries. Lead trusts can be set up during life or at death.

Typically, charitable lead trusts are funded with either appreciated property or income-producing assets. Trusts are not tax-exempt; therefore, appreciated property may be less suitable for funding inter vivos lead trusts if sale and reinvestment by the trustee is anticipated.

Benefits:

• meet charitable obligations
• make discounted, deferred transfer of assets to children or grandchildren

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For more information, contact Robert Brown ’82, CFP at 717-796-5051 or toll free at 1-800-215-5433.