The Charitable Remainder Trust:
Prefaced by that short historical review, we turn
to consideration of the charitable remainder trust -
the CRT, a congressionally approved statutory device
allowing those people of wealth who wish to "do good" -
to do very well indeed. As you will see, it is no
wonder the CRT has such wide popularity among the tax
paying cognoscenti.
The CRT is a tax-exempt irrevocable living trust
with one or more living income beneficiaries, and one
or more qualified tax-exempt charitable remaindermen.
And remember "irrevocable" means what it says: the
transferred property is no longer yours. As a general
rule, most experts offer the opinion that for feasible
operation, a CRT should start with assets worth at
least $50,000; but others say as little as $20,000 is
financially sound if the donor is young and the term of
years for the trust is long, or if high-yield
investments such as a mutual fund are pursued.
Although the discussion here centers on living
charitable remainder trusts, a CRT also can be created
in a last will and testament. A "testamentary CRT" is
relatively rare, with a testator directing that a named
percentage of the value of the trust be paid to the
beneficiary for life, with the remainder afterward
going to a qualified charitable organization. This
arrangement allows the present value of the charity's
deferred interest to be deducted from federal estate
taxes.
The single most distinctive characteristic of the
CRT, and the key to its associated tax and income
benefits, is found in the identity of the ultimate
beneficiary of the trust - the "remainderman", to use
the quaint English common law term. When a CRT has
fulfilled its terms, run its legal course, and is ready
to go out of business, the law says the remaining
assets ("the charitable remainder") must go to a
"qualified" tax-exempt charitable organization as
defined by the Internal Revenue Code.
Under the Internal Revenue Code the donor has the
right to change the ultimate remaindermen at any time
before final distribution of the trust. So long as one
charity is replaced with another IRS "qualified"
charitable organization, the CRT's tax exempt status
remains secure. Here's a tip: if you have a specific
charity in mind (and you probably do), obtain their
agreement to pay the creation costs of the CRT in
return for your including in the trust declaration a
waiver of your right to change remaindermen, making
them the sure winners.
Calling the CRT a "qualified trust," is yet
another name you will sometimes hear, meaning both that
the CRT itself "qualifies" as tax exempt, and that the
object of its ultimate distribution is also a
"qualified" tax exempt organization.
That Congress should be so generous in allowing
the grantor of a CRT so many tax breaks is perfectly
consistent with the historic background we discussed -
using taxes and tax concessions not just for revenue
purposes, but to promote policy objectives as well. In
exchange for his or her ultimate gift to charity, the
CRT donor avoids many of the onerous asset-depleting
tax burdens otherwise imposed by government - all in
the name of promoting sweet charity which, it is
rightly said, "begins at home."
With the CRT, it certainly does.
Let us now explore some of these attractive tax
advantages that flow from the creation of a CRT.
