Legal Definitions - charitable remainder trust

A charitable remainder trust is a type of trust that allows a person to create a trust that generates income for a certain number of years and then transfers the assets to a charity. This type of trust is popular because it allows the person to still receive income while also receiving tax benefits after creating the trust.

One example of a charitable remainder trust is a Charitable Remainder Annuity Trust (CRAT). This type of trust distributes income based on a fixed percentage every year and ends after the person dies. Another example is a Charitable Remainder Unitrust (CRUT), which allows the income to be made based on a percentage of the assets, which can vary based on the performance of the trust for a specific amount of years. CRUTs also allow the person to contribute more into the trust after its creation, unlike CRATs.

For example, John creates a CRUT and contributes $100,000 into the trust. The trust generates income of 5% per year, which is $5,000. John receives this income for 10 years, and then the remaining assets in the trust are transferred to a charity of his choice.

Another example is Sarah, who creates a CRAT and contributes $500,000 into the trust. The trust generates income of 4% per year, which is $20,000. Sarah receives this income for 20 years, and then the remaining assets in the trust are transferred to a charity of her choice.

These examples illustrate how a charitable remainder trust can provide income for a person while also allowing them to support a charity of their choice.