Calculating Charitable Remainder Trust

Introduction

When it comes to estate planning, charitable remainder trusts (CRTs) are an excellent way to provide for your heirs while also supporting a charitable cause. However, figuring out the numbers for a CRT can be challenging. The good news is, there are now plenty of online CRT calculators available to help you determine the best course of action.

What is a Charitable Remainder Trust?

A CRT is a type of irrevocable trust that allows the donor to receive income from the trust for a specified period, or for their lifetime, while the remainder goes to a charitable organization. There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs).

Charitable Remainder Annuity Trusts (CRATs)

Under a CRAT, the donor receives a fixed annuity payment each year, regardless of the trust’s performance. The amount of the annuity payment is determined at the time the trust is established and cannot be changed.

Charitable Remainder Unitrusts (CRUTs)

With a CRUT, the donor receives a percentage of the trust’s value each year. The percentage is based on the value of the trust assets at the beginning of the year. If the value of the trust increases, the donor’s payment increases, and if the value decreases, the payment decreases.

How to Calculate a Charitable Remainder Trust

Calculating a CRT can be complex, and it’s always best to consult with a financial advisor or estate planning attorney. However, online CRT calculators can give you an idea of what to expect. Here are the steps to calculate a CRT:

Step 1: Determine the Assets to be Contributed

The first step is to determine the assets you want to contribute to the trust. These can be cash, stocks, real estate, or other assets.

Step 2: Choose a Charitable Beneficiary

Choose the charitable organization that will receive the remainder of the trust when it terminates.

Step 3: Determine the Income Percentage

Decide on the income percentage you want to receive from the trust each year. This can be a fixed percentage with a CRUT or a fixed dollar amount with a CRAT.

Step 4: Determine the Trust Term

Choose the length of time the trust will be in effect. This can be a specific number of years or for the donor’s lifetime.

Step 5: Determine the Discount Rate

The discount rate is used to calculate the present value of the remainder interest that will go to the charitable organization. This rate is based on the current market conditions and the expected return on the trust assets.

Step 6: Calculate the Income Tax Deduction

The donor can take an income tax deduction for the present value of the remainder interest that will go to the charitable organization.

Conclusion

Charitable remainder trusts can be a great way to support a charitable cause while also providing for your heirs. Calculating a CRT can be complicated, but with the help of online CRT calculators, you can get a better idea of what to expect. Remember, it’s always best to consult with a financial advisor or estate planning attorney before making any decisions about a CRT.