Charitable Remainder Trust: How to Give to Yourself, Beneficiaries, & a Charitable Organization

HomeBlogEstate PlanningCharitable Remainder Trust: How to Give to Yourself, Beneficiaries, & a Charitable Organization

If you’re looking for a way to give back to your community, you may consider setting up a charitable trust. A Charitable Remainder Trust, also called a CRTrust is an irrevocable trust that allows you to donate money to charity while still receiving tax benefits. This arrangement is beneficial for both the donor and the beneficiary. Let’s take a closer look at how this works!

What is a Charitable Remainder Trust?

A charitable remainder trust is an estate planning tool that allows you to plan a future donation of money or assets to a charity of your choice while still receiving tax benefits and monthly payments for you and any beneficiaries for 20 or fewer years.

Your attorney sets the trust up so that you or another family member receives income from the trust for a set period of time (not more than 20 years).

After that time has passed, the remaining assets in the trust go to the chosen charity. This type of trust can be very beneficial for both you and your chosen charity.

How Does a CRTrust Work?

A Charitable Remainder Trust generates income to cover some of your living expenses (or someone else’s) while providing the remainder of the trust as a donation to the philanthropic organization of your choice. The organizations receiving the remainder of the trust are called charitable beneficiaries.

You can designate charitable beneficiaries with your estate planning attorney as you set up the Charitable Remainder Trust.

Setting Up a Charitable Remainder Trust for Estate Planning

When you set up a Charitable Remainder Trust with your estate planning attorney, you choose who to name as trust beneficiary. If you choose yourself, then your Charitable Remainder Trust is an estate planning tool you can use to:

  • Qualify for Medicaid coverage of long-term care (if set up 5 years before you need it)
  • Generating income for your retirement plans so that you can live on a fixed income for 20 years
  • Create partial tax-deduction or tax-exempt status
  • Avoid capital gains tax
  • Claim a charitable deduction for income taxes
  • Shield money from civil lawsuits
  • Remove assets from divorce proceedings
  • Protect private business interests
  • Avoid estate taxes

With all of these benefits,  it’s no wonder that Charitable Remainder Trusts are becoming more popular. If you’re looking for a way to give back to your community and receive some tax benefits, setting up a Charitable Remainder Trust may be the perfect solution!

Setting Up a Charitable Remainder Trust for Other Designated Charitable Beneficiaries

You can name someone else as the income beneficiary to receive the payouts until the remainder goes to the charity of your choice.

As a parent or grandparent, you can set up a Charitable Remainder Trust to create an income stream for a grown child or grandchild while you save on taxes.

Many types of relatives or friends can benefit from a charitable remainder trust, including:

  • A grown grandchild who has a drug, gambling, or shopping addiction
  • Someone who chooses to live as a homeless person
  • An ex-spouse with a mental disability (a lump sum can disqualify disabled or special needs individuals from their government benefits)
  • A special needs or disabled child or grandchild living on their own (a lump sum can disqualify disabled or special needs individuals from their government benefits)
  • A grown daughter on Medicaid who is home full-time with children (a lump sum can disqualify  individuals on Medicaid from receiving their government benefits)

In these situations above, a lump sum gift can be a waste. For those who cannot hold onto savings, a CRTrust can make all the difference.

And for those receiving government benefits, their means-tested benefits stop with a lump sum payment. When benefits stop, they would spend the lump sum on their daily expenses. Then, they would need to go through the application process to requalify for their benefits.

Two Types of Charitable Remainder Trusts

You and your attorney can set up your trust to payout in one of two different ways- with a CR Annuity Trust or a CR Unitrust. The type you choose determines how your trust calculates your payouts. Your projected income payments will differ, depending on which you choose.

Charitable Remainder Unitrusts

A Charitable Remainder Unitrust pays a fixed percentage (based on the principal) to the beneficiary at set times. Often, individuals choose a Charitable Remainder Unitrust in retirement planning. With a Charitable Remainder Unitrust, your disbursements vary depending on the value of the trust’s assets.

Charitable Remainder Annuity Trusts

The Charitable Remainder Annuity Trusts pay a fixed amount to the beneficiary at specified times during the life of the trust. The payouts do not change, even if the trust’s value fluctuates.

Choosing how to structure payouts to the beneficiary can be complex. Talking with your estate planning attorney about the benefits and drawbacks of each structure can help.

Either structure may be better for you, depending on who you name as the beneficiary and the intended purpose of your trust. Either format can still meet your philanthropic goals.

Final Thoughts

Charitable trusts can help you plan for retirement, protect your assets from lawsuits, help you prepare for long-term care, and save on taxes or benefit other individuals who need help.

In addition, you benefit a charitable organization that will receive the remainder of the trust once beneficiary payouts stop. You can even set up a charitable fund yourself that receives the remainder trust assets! 

Whether you set up your own charitable trust or choose another philanthropic organization, the remaining trust assets benefit those in need!

We Can Help

At Vail Gardner Law, we help you plan for your future. There are many types of trusts to choose from, depending on your goals and needs. Our experienced estate planning attorneys work with you to ensure that the trust you want to create meets all of your needs. Schedule a consultation with us today and find out how we can help you prepare for whatever may come!