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Charitable
Remainder Trusts

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. Once established, it cannot be changed. 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 an annuity income or a unitrust income.

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.

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. If the value of the principal in the unitrust declined, the value of the interest portion of the unitrust would decline as well. The unitrust interest value would increase if the value of the trust assets increased.

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.

Return to scenario #3 - Susan and Fred.