Financial Word of the Week: Charitable Remainder Trust
Conceptually, a charitable remainder trust (CRT) is similar to a charitable lead trust (CLT), except the payouts happen in the reverse order. In fact, a CRT is a trust that provides for distributions to one or more individuals for a term specified under the terms of the CRT, with the balance passing to one or more charities at the end of the specified term. The individuals generally receive an annual payment equal to a fixed annuity amount or a percentage of the trust assets valued annually. The individuals will generally receive these payments either for a term of years (up to 20 years) or throughout the lives of one or more named individuals.
Unlike a CLT, a CRT is considered a tax-exempt trust, and the trust itself does not pay any taxes. This allows the donor a current charitable deduction for contributions made to the CRT with the amount of the deduction being the present value of the remainder interest that will pass to charity. This makes a CRT a great vehicle for highly appreciated assets as the assets can be contributed to the CRT and the assets will not generate any tax to the trust when sold inside the CRT. However, it is important to note that the payments made to the individuals, may be subject to taxes at the individual level. Also, it is important to note that in order to receive the tax benefits and to qualify as a CRT, the IRS has placed certain restrictions on how a CRT must be structured, this is in part to ensure that a portion of the assets will in fact pass to the designated charities.
For more information on estate planning, check out our post on the benefits of a will.
UMB Financial Corporation (Nasdaq: UMBF) is a financial services holding company headquartered in Kansas City, Mo., offering complete banking, payment solutions, asset servicing and institutional investment management to customers. UMB operates banking and wealth management centers throughout Missouri, Illinois, Colorado, Kansas, Oklahoma, Nebraska and Arizona. It also has a loan production office in Texas. Subsidiaries of the holding company include mutual fund and alternative investment services groups, single-purpose companies that deal with brokerage services and insurance, and a registered investment advisor that manages the company's proprietary mutual funds and investment advisory accounts for institutional customers.