A charitable remainder trust is an estate planning device that permits the settlor to preserve and receive income during his or her life or for a specified period. After the decease of the settlor the remainder of the trust property is distributed to a specified charity or charities.
The settlor is able to defer income taxes on the assets transferred into the trust, and a partial charitable deduction is determined by the value of the charitable remainder of the trust.
A charitable remainder annuity trust [CRAT] distributes a determined amount of monies annually.
A charitable remainder unitrust [CRAT] distributes a percentage of the trust’s assets annually in amounts that must equal at least 5% and no more than 50% of the value of such assets.
Payments received by the beneficiary are deemed ordinary income and taxed accordingly. When the ordinary income of cash benefits of the trust is exhausted, any distribution of capital assets, including real estate, are taxed as capital gains.