A Charitable Remainder Trust (CRT) is a smart way to give to charity while still receiving income for yourself or your beneficiaries. It allows you to donate assets, receive annual payments, and get tax benefits, all while supporting a cause you care about.
What is a Charitable Remainder Trust?
A CRT is a type of irrevocable trust that lets you transfer assets while still benefiting from them. It works in two phases:
- Income Phase: You or your beneficiaries receive a percentage of the trust’s value each year.
- Charitable Phase: After the income phase ends, the remaining assets go to your chosen charity.
How Does a Charitable Remainder Trust Calculator Work?
The calculator considers:
- Initial Contribution: How much you put into the trust.
- Payout Rate (%): The percentage of the trust’s value you’ll receive each year.
- Trust Term: How long the income will be paid out.
- IRS Discount Rate (AFR): Used to calculate the present value of the remainder gift.
- Investment Growth Rate: Estimated annual return on trust assets.
Example Calculation
Let’s say you set up a CRT with:
- $500,000 in assets
- 5% annual payout rate
- 20-year term
- 6% investment growth
- 4% IRS discount rate
Estimated Results:
- Annual Income: $25,000 per year
- Total Income Over 20 Years: $500,000
- Charity’s Final Gift: ~$250,000
- Tax Deduction: ~$100,000
Why Consider a Charitable Remainder Trust?
- Steady Income: Get a reliable income stream.
- Tax Savings: Receive an immediate tax deduction and defer capital gains tax.
- Support Charity: Leave a lasting legacy.
- Estate Planning Tool: Reduce estate taxes.
FAQs
Can I change the charity in my CRT?
No, once a CRT is set up, the designated charity is irrevocable.
What types of assets can I put in a CRT?
You can contribute cash, stocks, real estate, and other valuable assets.
Will I have to pay taxes on my CRT income?
Yes, but the type of tax depends on how the trust generates the payments.
What happens if I live longer than the CRT term?
If the trust was set for a fixed term, payments stop, and the remainder goes to the charity.
Can I set up a CRT on my own?
It’s best to consult a financial planner or attorney to ensure everything is structured correctly.
Final Thoughts
A Charitable Remainder Trust Calculator is a valuable tool for planning your income and charitable giving. Consider speaking with a financial expert to explore your options.