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What is a Charitable Remainder Annuity Trust (“CRAT”)?

Estate Planners | Monday, February 7th, 2011

Making decisions about how to distribute the wealth that you accumulate over the course of your life can be challenging. The charitable remainder annuity trust is a standard type of trust that allows you to have income for the remainder of your life while giving a favorite charity a substantial gift when you pass away. Real property, securities, cash, and various other assets can be transferred into this type of trust. A trustee will manage the assets within the truth and pay you (or other beneficiaries) a fixed income for the rest of your life or for a time period that you specify. When the trust expires, the remainder of the assets in the charitable remainder annuity trust will be transferred to your charity, church, or other non-profit organization.

The typical donor in a charitable remainder annuity trust is someone who desires an income stream for their lifetime or a specific number of years. The ideal donor for this type of trust does not plan on is usually between the ages of fifty-five and eighty and has no plans of making additional gifts to the trust in the years to come.

Benefits of the Charitable Remainder Annuity Trust or CRAT

There are many advantages to the charitable remainder annuity trust, including:

* Provided fixed income payments for life, or for another time period that you designate.

* Allows for more than one beneficiary.

* Assets that are placed in the trust can be re-invested, often as the donor sees fit, if he or she is made trustee of the trust.

* The investment of assets within the trust is designed to balance preservation of the trust’s principal with income.

Making a Gift via CRAT?

After consulting with an estate planner and determining that the charitable remainder annuity trust is in your best interest, a trust instrument or document will be drafted that meets the needs that you have. Your assets are then turned over to the trustee of your choice, if applicable. The assets within the trust may be sold by the trustee and then reinvested in order to match the income objectives and goals that you have. You will receive a fixed income payment for your lifetime or for a specific number of years. When you die or the trust expires, the remainder of the assets in the trust will be transferred to your charity.

Tax Breaks from Charitable Remainder Annuity Trusts

The IRS (Internal Revenue Service) has a specific formula that is used to determine the amount of tax deduction that you can receive from a charitable remainder annuity trust. This formula is based on the age of the donor(s) at the time that the trust is established, the payout of the trust, and the applicable federal rate, which is an IRS index rate. Basically, the older you are, the larger the deduction. Likewise, if the trust is set up for a period of years rather than a lifetime, the deduction will also be greater.

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