What is a Charitable Remainder Trust?

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A charitable remainder trust (CRT) is a trust that distributes a fixed percentage of the value of its assets to a non-charitable beneficiary, usually the settlor of the trust, for a stated period of time, usually their lifetime (§664). The fixed distribution must be between 5% and 50% of the fair market value of the trust assets. Then, when the stated time limit is reached, the remaining balance of the value of the assets is distributed to a charity. This remaining balance must be at least 10% of the fair market value of the assets originally placed in the CRT.

If the lifetime beneficiary of the trust is the settlor, or person who placed the assets in the CRT, then the distributions will not be subject to gift taxes. However, if the beneficiary is someone other than the settlor, then the lifetime distributions may be subject to gift taxes. The assets that are placed in a CRT are not included in the settlor’s estate for estate tax purposes. The Internal Revenue Code (§2055(a)) provides a deduction from the value of the gross estate for transfers to qualified charitable organizations.

The settlor may also be eligible for a charitable deduction for the value of the remainder of the assets that are transferred to the charitable organization.