Charitable remainder trusts: What, where, who, why, when, and how?

by Laurie Valentine, Counsel, Philanthropic Giving at Community Foundation Tampa Bay

If you’ve represented charitable families over the years, you’ve certainly heard the term “charitable remainder trust,” sometimes called a “CRT.” You might have even helped clients set them up.  

For most attorneys, CPAs, and financial advisors, CRTs don’t come along every day. Because a CRT can be such an effective planning tool in certain situations, it’s useful to have at least a basic level of knowledge about how they work. Always keep in mind that we are happy to run CRT illustrations for you through our software so that you have an easy-to-follow tool for you and/or your client.  

Here are six important points to keep in mind.

What is it? Your client establishes a CRT as a standalone trust. The trust pays an income stream to the client (and potentially other beneficiaries such as a spouse or children) for life or for a period of years. According to the trust’s terms, whatever assets are left when the income stream ends will pass to a charity, such as your client’s fund at the community foundation.

Where does the charitable deduction figure in? Because the transfer of assets to the CRT is irrevocable, your client is eligible for an up-front charitable income tax deduction in the amount of the present value of the charity’s future interest, calculated according to IRS-prescribed rules and interest rates.  

Who is it for? The ideal client to establish a CRT is typically someone who owns highly appreciated assets, including marketable securities, real estate, or certain types of closely-held business interests. That’s because a CRT allows these assets to be sold within the trust without triggering immediate capital gains taxes, enabling the proceeds to be reinvested.  

Why are some trusts called CRATs and CRUTs? A “charitable remainder annuity trust” (“CRAT”) is a type of CRT that distributes a fixed dollar amount each year to the income beneficiary. Your client cannot make additional contributions to a CRAT. A “charitable remainder unitrust” (“CRUT”), on the other hand, is a type of CRT that distributes a fixed percentage (at least 5%) annually based on the balance of the trust assets (revalued every year). Your client can make additional contributions to a CRUT during lifetime.

When is a CGA a better fit? A charitable gift annuity (CGA) may be a better fit if the client wants a fixed, never-changing life income payment, wants to be the sole life income beneficiary or only wants to name themselves and one other person, and does not want to go to the expense of having a CRT prepared.

How can I learn more? As is the case with any question you encounter from a client about charitable giving techniques, the community foundation is honored to be your first call. We can help you navigate the options and identify strategies that are likely to best meet a client’s needs.

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Laurie Valentine, JD, has served as Counsel for Philanthropic Giving at Community Foundation Tampa Bay since 2022. With expertise in charitable giving, estate planning, and nonprofit law, she helps professional advisors, philanthropically-minded individuals, and families navigate create impactful legacies in Tampa Bay.