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Simple English definitions for legal terms
charitable remainder trust
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A quick definition of charitable remainder trust:
A charitable remainder trust is a type of trust that allows someone to create a fund that generates income for a few years and then gives the remaining assets to a charity. This type of trust is popular because it allows the person creating the trust to still earn money while also receiving tax benefits. The trust gives the person or another chosen beneficiary income every year until the trust ends, and the trust cannot be changed once it is created. There are two types of charitable remainder trusts: annuity trusts, which distribute income based on a fixed percentage every year and end after the person dies, and unitrusts, which allow the income to be made based on a percentage of the assets and can vary based on the trust's performance for a specific amount of years. Unitrusts also allow the person creating the trust to contribute more money to the trust after it is created.
A more thorough explanation:
A charitable remainder trust is a type of trust that allows a person to create a trust that generates income for a certain number of years and then transfers the assets to a charity. This type of trust is popular because it allows the person to still receive income while also receiving tax benefits after creating the trust.
One example of a charitable remainder trust is a Charitable Remainder Annuity Trust (CRAT). This type of trust distributes income based on a fixed percentage every year and ends after the person dies. Another example is a Charitable Remainder Unitrust (CRUT), which allows the income to be made based on a percentage of the assets, which can vary based on the performance of the trust for a specific amount of years. CRUTs also allow the person to contribute more into the trust after its creation, unlike CRATs.
For example, John creates a CRUT and contributes $100,000 into the trust. The trust generates income of 5% per year, which is $5,000. John receives this income for 10 years, and then the remaining assets in the trust are transferred to a charity of his choice.
Another example is Sarah, who creates a CRAT and contributes $500,000 into the trust. The trust generates income of 4% per year, which is $20,000. Sarah receives this income for 20 years, and then the remaining assets in the trust are transferred to a charity of her choice.
These examples illustrate how a charitable remainder trust can provide income for a person while also allowing them to support a charity of their choice.
charitable remainder annuity trust | charitable remainder unitrust