Trusts can be used as a useful tool in your estate plan to accomplish a variety of goals. One example is establishing a split-interest charitable trust. These charitable trusts are an irrevocable trust established for a charitable purpose of your choosing, while at the same time featuring a benefit to a non-charitable trust beneficiary. In addition to tax benefits received under federal law, charitable trusts offer the person establishing the trust, also known as the “settlor,” a controlled process to effectuate their gift to a selected charity. Examples of charitable trusts include a charitable remainder annuity trust (CRAT), charitable remainder unitrust (CRUT), and a charitable lead trust (CLT).
CRATs, CRUTs, AND CLTs
Establishing a charitable remainder annuity trust includes the transfer of property to a trust that first distributes a fixed annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt charity selected by the settlor. Similar to the charitable remainder annuity trust, a charitable remainder unitrust also includes the transfer of property to a trust that first distributes an annuitized portion of the trust property to non-charitable trust beneficiaries, followed by a distribution of the remainder to the tax-exempt trust beneficiary; however, the amount of the annuity fluctuates with the value of the trust assets. A charitable lead trust differs from the charitable remainder annuity trust and charitable remainder unitrust in that the settlor will designate that the charitable beneficiary will first received a distribution of trust assets at least annually for a set period of time, after which the non-charitable trust beneficiary will receive the remainder of trust property. Each of these three split-interest charitable trusts offer dual benefit to a designated charitable purpose and the settlor’s non-charitable trust beneficiary.