A charitable remainder trust is a tax-exempt irrevocable trust designed to reduce the taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity.
Is income tax imposed on the distributions and who pays it? CRTs are exempt from income tax. The CRT assumes the grantor's adjusted cost basis and holding period in the property. If the CRT sells appreciated property, neither the grantor nor the CRT will pay immediate income tax on the sales.
A CRAT pays a fixed percentage (at least 5%) of the trust's initial value every year until the trust terminates. The donor cannot make additional contributions to a CRAT after the initial contribution. A CRUT, by contrast, pays a fixed percentage (at least 5%) of the trust's value as determined annually.
CRT terminations generally take one of two forms: (1) the assignment of the income interest to the charitable remainder beneficiaries (an “assignment termination”); or (2) division of the trust assets between the income and remainder beneficiaries based upon the actuarial present value of their respective interests (an ...
At the end of the trust's term, the asset (that is, the “remainder”) goes to charity. ... When a charitable trust goes bad, the payouts start cutting into principal; each year, then, the donor will receive a smaller payout amount as the principal shrinks.
A CRT lets you convert a highly appreciated asset like stock or real estate into lifetime income. It reduces your income taxes now and estate taxes when you die. You pay no capital gains tax when the asset is sold. It also lets you help one or more charities that have special meaning to you.
The CRT is a good option if you want an immediate charitable deduction, but also have a need for an income stream to yourself or another person. It is also a good option if you want to establish one by will to provide for heirs, with the remainder going to charities of your choosing.
Pros of a Charitable Trust:
The charity pays you (or whoever you designate) for a specific time period determined by you. Upon your death -- or at the end of the designated time period -- the property goes to the charity. No federal tax on the property donated to charity.
The time it takes to create the trust depends on how efficiently the attorney and client work together. The one-time cost can be $3,000-8,000 depending on the complexity of the trust. There will be annual investment management costs and custody costs which might approximate 1-1.5%.
A charitable trust, as defined by the IRS, is not tax-exempt, and its unexpired assets are used to support one or more charitable activities.
The grantor has the right to amend the trust to change the charitable remainder beneficiaries and to change the amount or percentage of the remainder that is distributed to them.
Finally, trusts have a beneficiary - it is this party that derives the benefit from the assets that have been transferred into the trust. The main distinction between charitable trusts and other types is that the intended beneficiary is a charity or charitable cause.
The power to cancel registration has been given to the Commissioner without granting to the trusts a corresponding right to agitate the order of cancellation. The assessee has to agitate the grievances only before the High Court in a writ petition.
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