Two Types of Charitable Remainder Trusts
April 9, 2020
People who wish to provide significant financial support to a charitable organization may at times be hesitant of providing sizeable grants or donations while they are still alive, in part because they may need to ensure they retain enough of their own assets to take care of themselves for as long as they have left to live. However, the same people do not want to pass up the opportunity to ensure that their money or other assets do not end up going to the charity or charities of their choice. This is where a charitable remainder trust may be of use.
As explained by Fidelity, a charitable remainder trust enables a person to fund a trust with a variety of assets, secure an annual income stream from the trust while they are still living, and stipulate the distribution of assets to one or more charities upon their death. The annual income may be for themselves or another beneficiary who is not a charitable organization. The income received from a charitable remainder trust is not taxable.
Charitable remainder trusts can be put in place to last as long as the creator lives or for a set number of years not to exceed a maximum of 20 years. The avoidance of capital gains taxes means a charity realizes the full value of a trust asset.
Smart Asset adds that there are two flavors of charitable remainder trusts, one that allows a person to add assets to the trust over time and one that does not. In the former, the non-charitable beneficiary receives a percentage of the trust value each year while the other trust pays a fixed amount.