Charitable trusts can offer significant tax advantages and good stewardship planning for a wide array of circumstances. Many types of assets can be donated to a charitable trust and the income and/or principal of the assets is then used to make payments to the income beneficiaries for their life or a term of years. It’s very common for people to fund charitable trusts with appreciated assets such as stock or real estate. The type of trust used greatly depends on the goals and circumstances of the donor. Charitable trusts are used during life and after death (testamentary). The three primary types of charitable trusts are listed below:

CHARITABLE REMAINDER UNITRUST (CRUT)
A CRUT is a tax-exempt charitable trust that provides a life long, or term of up to 20 years, income stream based on a fixed percentage multiplied by the year end value of the trust assets. It also provides an opportunity to avoid capital gain tax on appreciated assets that are sold within the trust. The donor receives an income tax deduction in the year the gift is made to the trust. The amount of the deduction depends upon a number of factors including the payout rate; the amount of the trust assets, and the ages of the income beneficiaries. The CRUT is required to pay a minimum rate of 5% of the net fair market value each year end. The maximum payout is determined by meeting the minimum 10% charitable deduction required by the IRS.

CHARITABLE REMAINDER ANNUITY TRUST (CRAT)
A CRAT is similar to a CRUT but instead pays a fixed dollar amount based on the original value of the trust and the selected payout rate. The IRS requires that a CRAT payable for one or more lives also passes a 5% probability test, in addition to the 10% minimum deduction, to help ensure that the trust assets are not exhausted during the life of the trust.

CHARITABLE LEAD ANNUITY OR UNI-TRUST (CLT)
A CLT is designed to pay an income stream to charity, usually for a term of 10 to 20 years. When the trust terminates, the principal can then revert back to the grantor (donor) or be designated to others, such as children, with little or no gift or estate tax. A long trust duration combined with a high payout percentage to charity produces the largest tax deduction. A CLT that reverts to the donor produces an income tax deduction, while a CLT that reverts to someone other than the donor produces gift or estate tax deductions.

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