What You Need to Know About Charitable Remainder Trusts in Washington State

Many Spokane Valley residents want to include charitable giving as part of their overall estate plan. This can be something as simple as making a charitable bequest in their will or living trust. But if you are looking to make a more substantial donation, you may want to consider creating a charitable remainder trust (CRT).

What Is a CRT?

Like any trust, a CRT involves you (as the donor) transferring property to a trustee. This property can be cash, real estate, or any other assets you currently own. Unlike the revocable living trusts more commonly used in estate planning, however, a CRT is irrevocable. This means that once you create and fund the CRT, you cannot take those assets back.

Once funded, the basic life cycle of a CRT proceeds as follows:

• The trust pays income from its assets to 1 or more living beneficiaries. This can include the donor during their lifetime.
• These income payments continue for a specified period, either up to 20 years or until one or more of the beneficiaries die.
• Once the payment term ends, whatever assets remain in the trust pass to one or more designated qualified charitable beneficiaries.

According to Internal Revenue Service regulations, the remainder given to the charitable beneficiaries must be at least 10 percent of the initial net fair market value of the property placed in the CRT.

Annuity Trusts vs. Unitrusts

A CRT can be structured as either a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT). The difference largely focuses on how the living beneficiaries receive income:

• In a CRAT, the trustee pays the beneficiary a specific dollar amount each year. This amount must be between 5 and 50 percent of the trust’s assets, based on the value of those assets when the trust was created.
• In a CRUT, the trustee pays the beneficiary a specific percentage of the value of the trust each year to one or more non-charitable beneficiaries. These payments must generally be equal to between 5 and 50 percent of the fair market value of the trust’s assets, which are re-valued annually.

Keep in mind, any payments from a CRT to a non-charitable beneficiary are considered taxable income. But any contributions to a CRT may also qualify for a partial charitable deduction. Essentially, the deduction is the difference between the donated property and the present value of the annuity.

Why Create a CRT?

CRTs are often used to help plan major donations to large charitable organizations. They can also provide the donor or members of their family with a predictable annual income stream while deferring income taxes owed on the sale of any assets transferred to the trust. However, a CRT cannot be used to make payments to any non-charitable beneficiaries outside of the prescribed annual payments.

If you have questions about a CRT or any other kind of estate planning trust, it is important to seek out competent legal advice. The Spokane estate planning lawyers at Moulton Law Offices, P.S., are here to help. Call us today to schedule a consultation. We serve clients throughout the Spokane Valley, Kennewick, and Yakima.

Source:

irs.gov/charities-non-profits/charitable-remainder-trusts