Frequently Asked Questions

  1. What is a Charitable Remainder Unitrust?
  2. What Formats are available for Charitable Remainder Unitrusts?
  3. What are some possible, personal financial benefits for creating a Charitable Remainder Trust?
  4. Who are the Candidates for a Charitable Remainder Trust?
  5. How is the income tax charitable deduction calculated for a gift to a Charitable Remainder Trust?
  6. What are the gift and estate tax consequences of retaining an income interest in a Charitable Remainder Trust?
  7. What tax and information returns are required after a Charitable Remainder Trust is created?
  8. What are the Annual Valuation Rules for Charitable Remainder Unitrusts? and Why are the Annual Valuation Rules Important?

  9. What is a Charitable Remainder Annuity Trust?

    A charitable remainder annuity trust (CRAT) is a trust from which a sum certain (which is not less than 5 percent nor more than 50 percent of the initial fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not a charity and, in the case of individuals, only to an individual who is living at the time of the creation of the trust) for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals.

    The annuity amount may be stated as a fixed percentage of the initial net fair market value, or a fixed amount. The annuity percentage or amount that is fixed cannot be changed regardless of fluctuations in portfolio value. For this reason, additional contributions to annuity trusts are prohibited.

    Additionally, the 1997 Taxpayer Relief Act requires that all contributions to a charitable remainder trust after June 18, 1997 must comply with a new rule designed to ensure that the charitable interest is substantial. Specifically, the present value of the charitable remainder interest must be at least ten percent (10%) of the property value transferred to the CRT. This percentage is calculated using the same rules as are used for calculating the income tax charitable deduction.

    Every CRAT that bases its cash flow distributions on a life expectancy must pass the 5% Probability Test upon its initial funding or else the CRAT will not qualify for the tax benefits discussed elsewhere in this article (e.g., income tax charitable deduction, tax-exempt status, etc.). The concept behind the 5% Probability Test is that so long as the probability that the CRAT will implode is 5% or less, the trust should qualify as a CRAT. The 5% Probability Test is based on time value of money concepts using the current Applicable Federal Rate for the rate of return variable. Therefore, the test results are highly sensitive to changes in the Applicable Federal Rate.

  10. What Factors Should I Consider When Choosing a Payout Format for my Charitable Remainder Trust?
  11. How do I select a measuring term for my Charitable Remainder Trust?
  12. What are some methods of income deferral within a Flip Charitable Remainder Unitrust (Flip-CRUT) or a Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT)?
  13. What is a Flip Charitable Remainder Unitrust (Flip-CRUT)?
  14. What are the Typical Responsibilities of a Trustee of a Charitable Remainder Trust?
  15. What is an “Independent” Special Trustee (IST)? When is an IST used in Charitable Remainder Trust Planning?
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