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An arrangement that allows individuals to transfer assets or property to a trust for a partial tax deduction, receive income from the trust for a set period of time, and name a charitable beneficiary of the residual principal of the trust.
Charitable remainder trusts are traditionally set up at a financial institution, a process which requires legal expertise. While startup costs and minimums vary, contributions to a trust typically exceed $100,000.
An effective option for individuals who:
Prefer to receive income while fulfilling charitable goals and plan to gift to charity after they die.
|Tax efficacy||Limited||Due to income received from the trust, deduction is limited and generally based on estimated value of remainder interest that will ultimately go to charity. Additional limits may apply if the charity is a private foundation. Donating appreciated assets can provide additional tax advantages.|
|Cost||High||Costs vary greatly across trusts; startup costs can be high.|
|Control||Maximum||Choose income, remainder beneficiaries, and trustee. For greater control, you may serve as the trustee.|
|Distribution to charity||Some restrictions||May change charitable beneficiary over time, as long as the tax deduction for the organization type is less than or equal to the deduction you received for your initial contribution.|
|Legacy options||Some||Choose one or multiple organizations as beneficiaries to your trust.|
|Recognition v. anonymity||Flexible||May choose to remain anonymous or be recognized.|
A note about a charitable lead trust
While similar to a remainder trust in terms of tax efficacy, control, and granting options, a charitable lead trust is more expensive to establish, often requiring between $500,000 and $1 million in start-up costs. A lead trust's legacy options are also fundamentally different from a remainder trust's options. When a donor dies after receiving income from a remainder trust, a charity is the beneficiary of the remaining assets. With a lead trust, the charity receives payments through the term of the contract, and following that, individuals receive the remaining assets.