Charitable Remainder Trust

a flexible planning tool

Charitable Remainder Trusts (CRTs) come in two basic types described below. In designing a particular trust, many variations are possible to address specific planning needs. You should work closely with your professional advisor in designing a trust that is appropriate for your particular situation. The Foundation can provide sample documents, but your attorney must approve the formal trust instrument. We will be happy to work with you and your advisor.

CRTs are particularly useful for large gifts (i.e., in excess of $100,000) funded with highly appreciated property. The CRT is tax-exempt. Therefore, once the property is transferred to the trust, the trustee can sell the property with no capital gain liability. The full fair market value can then be reinvested by the trust in order to meet the income payment requirements. New in 2023, eligible individuals may make a one-time QCD from an IRA into a new CRT — contact the Foundation for more details.

charitable remainder unitrust

A tax-qualified trust wherein the donor receives annual income equal to a stated percentage (not less than 5 percent) of the fair market value of the trust’s assets. The trust is revalued annually. Thus, if investment return on trust assets is greater than the unitrust payout rate, the beneficiary’s income will rise each year. Conversely, if investment return is less than the payout rate, payments will be made partly from principal, and beneficiary income will decline. The charitable income and estate tax deduction are equal to the fair market value of the assets transferred to the trust, less the present value of the projected income to be received by the beneficiary. A donor can make additional contributions to the trust from time to time.

Read about this topic in greater depth

charitable remainder annuity trust

A tax-qualified trust wherein the donor receives annual income of a fixed amount for the duration of the trust. The annual income stream is equal to a stated percentage (not less than 5 percent) of the fair market value of the trust’s assets at inception. Thus, annuity payments are fixed at the time the trust is funded. Donors cannot make additional contributions. Unlike charitable gift annuities where the donor is an unsecured general creditor of the charity, annuity trust payments come exclusively from the corpus of the trust, not from the charity. There is, therefore, an upper limit to the amount of the annuity trust payments, if the trust is to be tax-qualified. There cannot be more than a 5 percent probability the trust will run out of money prematurely. If the annuitant lives beyond life expectancy, and the annuity rate is high relative to the trust’s investment experience, the trust can be depleted, and annuity payments cease. Income and estate tax deductions are similar to those of charitable remainder unitrusts.

The Foundation will serve as trustee for your charitable remainder trust provided the charitable remainder substantially benefits one or more ministries of the United Methodist Church in Missouri.

You will receive a Form 1041 Schedule K-1 from the Foundation each year for your tax reporting purposes.

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