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# Charitable Remainder Trusts

Charitable remainder trusts, or CRTs, are similar in concept to charitable gift annuities. However, instead of purchasing an annuity contract directly from a charity, the CRT donor sets up a trust and transfers an initial sum into it, typically in excess of $100,000. The donor then collects taxable annual payments from the trust's principal and earnings. Upon the donor's death the leftover trust principal goes to a charity or educational institution. All CRTs are irrevocable; the donor cannot take his or her money back if circumstances (or the donor's mind) change.

CRTs allow the donor – not the charity – to choose the amount that he or she will receive each year. A fixed dollar payment can be received from the trust annually for life (known as a charitable remainder annuity trust, or CRAT), or a fixed percentage of trust assets valued each year (a charitable remainder unitrust, or CRUT) may be selected. As with the gift annuity, a financial calculation based on an IRS-designated interest rate is used to determine a current value of the estimated trust remainder that the nonprofit beneficiary will receive when the trust ends. The donor can take that amount as a charitable deduction on his or her income tax return in the year the CRT is created.

The CRUT is the more popular version of the CRTs because it has features that make it particularly suitable for retirement planning. For instance, it offers a degree of inflation protection. As an example, if the trust payout is eight percent annually, then as the trust (hopefully) grows in value each year, so will the dollar amount of the donor's annual draw. The CRAT, in contrast, makes the same annuity payment to the donor every year for life.

Additionally, the CRUT – unlike the annuity trust – is not required to dip into trust principal if investment income isn't sufficient to make an annual payment to the donor (although the trust can be drafted to do so if the donor desires it). Many people choose investments that don't produce current income so that the trust can grow over the long term, such as undeveloped land or growth stock in a company that doesn't pay dividends. These donors likely don't need the extra income until retirement, and would prefer to have as much money available at that time as possible. As such, the CRUT can be written to allow any accumulated shortfalls in the annual payout to be made up in later years. Moreover, the donor can make additional contributions to the CRUT (which can't be done with the CRAT) whenever he or she has money available to do so. These features give the CRUT added value as a retirement-savings vehicle.

For individuals who may not be inclined to set up a charitable trust of their own, all of the recognized charities maintain their own trusts, otherwise known as pooled income trust funds. With these trusts, the donor does not have the option of choosing the timing or amount of his or her payout. The charitable organization manages the pooled income fund and each donor receives a check for his or her proportional share of the fund's income for that period.

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