Define: Charitable Remainder Trust

A Charitable Remainder Trust (CRT) is a type of irrevocable trust established to provide income to beneficiaries, usually the creators of the trust or their designated beneficiaries, for a specified period of time or for the beneficiaries’ lifetimes. Upon the termination of the trust, the remaining assets are then distributed to one or more charitable organisations named in the trust. The primary purpose of a Charitable Remainder Trust is to provide financial support for the beneficiaries while also allowing for a charitable donation. CRTs offer potential tax benefits, including income tax deductions for the charitable contribution and the potential avoidance of capital gains tax on appreciated assets contributed to the trust. Additionally, because the assets ultimately pass to a charitable organisation, CRTs can serve philanthropic goals while providing financial benefits to the beneficiaries during their lifetimes.

A type of charitable trust in which substantial assets are placed in an irrevocable trust. The trust is set up in such a way that the donor (or other beneficiaries named in the trust) receives trust income for a set number of years or for life, after which the assets are transferred to a tax-exempt charity. The IRS allows a significant tax deduction in the year the assets are donated to the trust. The tax savings are sometimes used to purchase a life insurance policy on the donor’s life, which is payable to the donor’s children or grandchildren upon the donor’s death. In this manner, the donor can make the charitable gift, receive income from the trust, and still make a large gift to family members at death. Charitable remainder trusts are classified into two types: charitable remainder unitrusts and charitable remainder annuity trusts.

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This glossary post was last updated: 29th March, 2024.