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Charitable Remainder Annuity Trust (CRAT)

August 22, 2011

Charitable Remainder Annuity Trust (CRAT)

 

Definition

A charitable remainder annuity trust, or CRAT, is a trust with both charitable and noncharitable beneficiaries. Every year for the term of the CRAT, the noncharitable beneficiary receives a payment (the annuity amount) from the trust property. At the end of the trust term, the remaining property passes to the charity. For this reason, the charity’s interest is described as a remainder interest.

Prerequisites 

  • A desire to donate to charity
  • A substantial asset to donate to charity

Key Strengths

  • Provides income tax deduction
  • Provides an income tax haven for assets that have appreciated substantially
  • Pays out fixed income every year
  • Exists with fairly simple administration
  • Reduces potential federal estate tax liability

Key Tradeoffs 

  • Requires an irrevocable commitment
  • Requires the annuity to be paid each year, regardless of whether there is sufficient trust income available
  • Inflation may cause CRAT to lose some of its value
  • Prohibits the additional contribution of assets

Variations from State to State 

  • Community property states may affect any gift tax due

How Is It Implemented? 

  • Consult a legal professional to draft the CRAT
  • Select a noncharitable beneficiary, a charitable beneficiary, and a trustee
  • Select the assets you want to use to fund the CRAT
  • Set the term of the CRAT and establish the annual payment amount

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com,  access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

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