Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust) Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust), written in plain English, along with examples of how it is used.

What is Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust)?

It is a tax saving trust where a person creates a trust and donates funds into it which is irrevocable by nature ie. cannot be taken back or terms cannot be changed. The whole idea is to save tax. Such funds or assets in that trust which generates income is disposed off to the beneficiary first throught the life time of the donor. Also at the time of contribution of such funds or asset into the trust, the donor gets huge tax deductions. Such deductions are so huge that the donor can take up a life insurance policy for himself so that his/her family gets huge amount of money on his death. On the death of the donor, the assets and funds of the trust is donated permanently for charity purpose.

History and Meaning of Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust)

A Charitable Remainder Trust (CRT) is a type of tax-exempt irrevocable trust that benefits both a charitable organization and an individual or individuals. It was created with the intention of reducing taxes on the transfer of large assets by allowing the donor to receive a significant charitable tax deduction.

A Charitable Remainder Trust is split into two parts: the income interest and the remainder interest. The income interest is paid out to the individual beneficiary(s) for a specific length of time or until the beneficiaries die, and the remainder interest is then given to the designated charity at the end of the trust's term.

Examples of Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust)

  1. An individual places assets in a Charitable Remainder Trust, naming themselves or another beneficiary as the recipients of the trust payments for a certain number of years. The trust assets grow as tax-free income generating investments until the receiver dies or the period ends, after which the remaining amount is donated to a charity.

  2. A person sets up a Charitable Remainder Trust, funds the trust with appreciated property, and receives a charitable tax deduction from the current-year tax return. The trust then invests in a diversified pool of investments, providing a regular income to the donor for their lifetime. When the individual dies or the trust term expires, the remaining funds are donated to a charity of their choice.

  3. A couple has a significant portion of their wealth invested in a family business. They donate a portion of their ownership stake to the Charitable Remainder Trust, which then sells the stake and invests the proceeds. The couple then receives a stream of income from the trust for their remaining lifetime, and when they die, the remainder goes to a charity they have chosen.

Legal Terms Similar to Charitable Remainder Trust (Charitable Remainder Irrevocable Unitrust)

  1. Charitable Lead Trust – In a Charitable Lead Trust, the income interest is given to a charitable organization for a specific time, and the remainder interest goes to the beneficiaries.

  2. Charitable Gift Annuity – A charitable gift annuity is a contractual agreement between the donor and the charity, whereby the donor receives a guaranteed fixed income stream for life, with the remainder donated to the charity upon their death.

  3. Pooled Income Fund – A Pooled Income Fund (PIF) works similarly to a CRT, with the difference being that instead of an individual trust, assets are pooled together for investment purposes, with the income split among the beneficiaries.