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A Charitable Remainder Trust is established for the life of the donor (also
trustor or grantor) and/or for the life of any beneficiary(-ies) and is irrevocable.
While there are certain changes that may be made, once the trust is established,
it cannot be revoked. If it is desired, the income period of the trust can be
established for a specified period of time not to exceed twenty years. The twenty-year
maximum does not apply if the trust life is based on the life expectancy of the
income beneficiary(-ies). Because the income is paid to one or more parties
and, at the end of the trust's life, the principal and any undistributed interest
is paid to a different party, a charitable remainder trust is called a split interest
trust. The income portion of the trust may be either a unitrust income
or an annuity income.
With a unitrust, the assets of the trust are revalued annually and the
percentage rate established in the trust agreement determines the dollar
amount of the unitrust interest. The unitrust interest amount would increase
if the value of the trust assets increased. If the value of the principal
in the unitrust declined, the amount of the interest portion of the unitrust
would decline as well.
An annuity income is calculated at the time the trust is established
in the trust agreement. It is a fixed amount of dollars based on the then
market value of the trust. If the assets of the trust go up in value,
the income portion does not change. A charitable remainder trust is an attractive planning tool for the disposal
of highly appreciated assets. While the assets revert to the charity rather than
the heirs of the estate, the use of an irrevocable life insurance trust in conjunction
with a charitable remainder trust could replace the asset's value for the heirs. Net
Income Charitable Remainder Trust
This variation of a unitrust provides
that either the specified fixed percentage of the trust assets or the net income
of the trust is distributed to the beneficiary, whichever is less. This type of
trust is often used to handle real estate as there is no fixed distribution requirement,
giving the trustee time to arrange an orderly sale of the property. A net income
charitable remainder unitrust can be an excellent way to donate appreciated property
and turn it into an income stream as well as acquire tax benefits. A donor
may also add a "makeup provision" to the trust. This allows a trust
to distribute more than the fixed percentage of the assets in years where the
trust's income exceeded the fixed percentage. In this manner, previous years'
shortages, when the trust was not able to earn the fixed percentage payment, may
be made up. Return to Charitable
Remainder Trust story or to Real Estate story. | 
