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A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust designed to benefit both a charity and the donor. The donor transfers assets into the trust, which then pays a specified percentage of the trust's value to the donor or other designated beneficiaries for a predetermined term, which can be for life or a fixed number of years. Upon the termination of the trust, the remaining assets are distributed to the nominated charity. Because the trust is irrevocable, the donor receives a charitable income tax deduction at the time of the gift, based on the present value of the charitable remainder. CRTs are effective in providing potential income, reducing taxable estate, and allowing donors to support charitable causes while receiving financial benefits during their lifetime.
While CRTs do offer substantial benefits for individuals with considerable assets, they are not exclusively for the wealthy. Anyone with appreciated assets and an intent to support charitable causes can explore creating a CRT, though they should carefully assess their financial situation.
Establishing a CRT can offer significant tax benefits, such as an immediate charitable tax deduction based on the present value of the remainder interest that will go to charity. Additionally, since the assets are removed from the donor's taxable estate, this can reduce estate taxes.
The donor, their family members, or other designated individuals can be beneficiaries of a CRT. They will receive the trust’s distribution for the term specified, which can be for life or a set number of years.
Not necessarily. CRTs may be more beneficial for individuals with significant assets or those seeking to minimize potential capital gains tax on appreciated assets. However, those in lower income brackets may find other giving strategies align better with their financial circumstances.