What is a Charitable Remainder Trust?

Adler & Adler, PLLC Team

A charitable remainder trust is an irrevocable trust wherein the grantor/donor can effectively sell appreciated assets without immediate capital gains taxes, increase current cash flow, generate a current income tax charitable deduction, and ultimately reduce estate taxes.

Typically, a charitable remainder trust provides that the non-charitable beneficiary (the grantor) receives payments, at least annually, during his or her life or for a pre-determined number of years, and the charity receives whatever trust assets remain at the end of the trust term (i.e., after the grantor’s death or selected term of years).

A charitable trust is sometimes referred to as a “split interest trust”. This is because the beneficial interests in the trust are “split” between the non-charitable beneficiaries and the charitable beneficiaries.

A charitable remainder trust may be considered when a charitably inclined individual wants to diversify a highly appreciated portfolio, while generating cash flow and an immediate income tax deduction. The grantor funds the charitable remainder trust with the highly appreciated assets. When the charitable remainder trust sells the highly appreciated assets, the charitable remainder trust itself is not subject to capital gains tax, thus allowing for the full value of the appreciated assets to be reinvested in a diversified portfolio. The capital gains taxes are in effect deferred and will be spread out and payable as the grantor receives payments from the charitable remainder trust.

See also: The Charitable Remainder Trust and the Wealth Replacement Trust.

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