Charitable Remainder Trusts: Leaving a Legacy

Charitable Remainder Trusts: Planning for Now and Leaving a Legacy

No question – planning for a time when you’re no longer around is hard. If you’re like most people, the most important thing is being able to continue to protect the people you love. And for many people who have made charitable gifting part of their mission, leaving a legacy ranks high as well. According to a recent survey, the top reasons for creating an estate plan are: 1) to provide for family financially (76.3%), 2) to streamline the inheritance process (65.5%), and 3) to leave a lasting legacy (36.8%).1charitable gifting

There’s an estate planning tool that can accomplish all three objectives—and also provide tax advantages. Charitable remainder trusts (CRTs) can help transfer appreciated assets in a tax-efficient way with the ability to provide for a charitable cause.

The Structure and the Advantages

A CRT is a tax-exempt trust that allows you to donate to the charity of your choice, while provisioning for a noncharitable beneficiary, such as the creator of the trust or any named individual or group.

Federal estate taxes can be avoided with CRTs because the appreciated property is removed from the estate. Because it is donated to a tax-exempt charity, the sale of the assets is not subject to capital gains taxes. For assets that have appreciated substantially, this can be a way to monetize the asset to the maximum extent and then create an income stream with the proceeds, leaving behind the remainder to fund a legacy for the charity.

It is important to remember that CRTs are irrevocable, meaning that once tax relief is granted for the sale of an asset, the relief can’t be revoked. The asset is also protected from claims by creditors since the asset is no longer in the donor’s books.

Two Options for Creating an Income Stream

Once a CRT is created, the property is transferred to the trust and its value is determined. The annual income stream paid out to the beneficiary of the trust can be either a fixed percentage of the value or a fixed dollar amount.

  1. A Charitable Remainder Unitrust (CRUT), calculates the annual payment as a fixed percentage of the initial value of the assets in the trust. The trust is revalued annually, and the payout is recalculated based on the value of the principal assets. The percentage remains the same, but the amount of the annual payout can move up or down, tied to increases or decreases in the value of the principal assets. This means the amount of the income stream is variable.
  2. A Charitable Remainder Annuity Trust (CRAT) also provides an annual payment to the beneficiary, but it’s a fixed dollar amount, based on the initial fair market value of the assets in the trust. This amount remains the same regardless of subsequent valuations.

Remember, in both the CRAT and CRUT, the IRS dictates that distributions to an appointed beneficiary be no less than 5% and no more than 50% annually. Furthermore, the charitable organization must receive at least 10% of the initial donation you made to the trust.

The terms of termination of the trust are determined by the trust document, and the remainder of the trust’s assets are then transferred to charity.

The Bottom Line

As with most estate planning tools, there is a level of complexity. When it comes to passing down wealth, it’s important to ensure assets are properly transferred and that your goals will be taken into account.


  1. Suh, Elissa. Survey: Nearly 40% Of People Feel Increasing Urgency To Get A Will Because Of COVID-19. PolicyGenius. December 2, 2020.



The information contained herein is intended to be used for educational purposes only and is not exhaustive.  Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return.  If applicable, historical discussions and/or opinions are not predictive of future events.  The content is presented in good faith and has been drawn from sources believed to be reliable.  The content is not intended to be legal, tax or financial advice.  Please consult a legal, tax or financial professional for information specific to your individual situation.

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The new tax laws and you

The new tax laws and things you can do right now – as published in The Racine Journal Times | May 8, 2018

Now that April is in the rear view mirror, you may think you don’t have to think about taxes until next year but there are several changes in the latest tax law bill worth paying attention to now. One may simplify your life over the next year while the other may stretch your charitable donations further.

While there are many changes to the tax laws, I’m only looking at a couple items I think could impact your financial decisions now. The first major change is the increased standard deduction which almost doubled. Just like in the past, you are able to subtract the greater of the standard deduction or your itemized deductions from your gross income to arrive at your taxable income.

When the standard deduction was lower, more people itemized due to medical expenses, state and real estate taxes, mortgage interest, charitable deductions and a number of other deductible expenses. With new limitations on certain deductions and the higher standard deduction, most people will no longer itemize their deductions. This is important to know sooner than later because you may not need to keep receipts throughout the year for medical expenses or charitable donations. Gathering this information has been a necessary hassle for many taxpayers in the past but won’t be needed in the future.

In order to determine if this applies to you, I recommend looking at your 2017 Schedule A (assuming you itemized last year) to see how close you are to the new standard deduction limit of $12,000 for single taxpayers or $24,000 for married taxpayers. If you’re more than several thousand dollars less than the new standard deduction and don’t expect any significant changes this year, it’s unlikely you’ll itemize for 2018 which means you don’t need to save the receipts.

The second strategy to consider now is for anyone over the age of 70.5 who regularly gives to charity. If you’re not itemizing then you’re also not saving taxes on your donations. The alternative would be to take distributions directly from your Traditional IRAs as a “Qualified Charitable Distribution” (QCD) so you avoid paying taxes on this money which is the same as deducting it from your income. There are a few caveats to this strategy so I recommend speaking with your tax preparer or financial advisor to do this properly.

This is important to consider sooner than later so you’re not writing checks to charity that won’t save you taxes. You can still support the causes or organizations important to you but at least do it so everyone benefits (including you)!

Taxes can be a confusing and overwhelming topic but learning about the changes gradually over the next year increases the chances you won’t miss out on an important change that affects you personally.

The season for asking

Charitable giving can start small

As published in the Racine Journal Times | Dec 3, 2014

It’s common knowledge the period of time between Thanksgiving and the end of the year is one of the busiest for donations to charities. Anyone who has donated to more than a couple of worthwhile organizations can expect to receive a letter asking for additional contributions. For some, this can be an overwhelming feeling because of the incredible need that exists, our desire to help and the limited resources we all have.
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