Charitable Remainder Trusts - Technical Analysis and Planning Opportunities

Author

Larry J. Johnson, Fontbonne College

Year of Award

1994

Degree

Master of Science in Taxation (MST)

College

College of Business & Professional Studies

Degree Program

Taxation

Department

Business Administration

Keywords

annuity, unitrust, fixed payment, annual, assets

Abstract

A charitable remainder trust is an irrevocable trust, funded with cash or property, from which a distribution is to be paid at least annually to one or more named recipients, at least one of which is not a charitable organization. The payments to the noncharitable recipients are for a term of years not greater than twenty years, or life. At the termination of such period, the trust assets must be distributed to, or held in the trust for the benefit of one or more qualifying charitable organizations. A charitable remainder trust can be inter vivos or testamentary. The grantor of a qualifying charitable remainder trust can receive a charitable contribution deduction based upon the actuarially computed present value of the charitable remainder.

Charitable remainder trusts are exempt from income tax, except during a year in which the trust has unrelated business income. This tax exempt status can result in significant tax savings when appreciated property is contributed to a qualifying trust and subsequently sold.

There are two types of charitable remainder trusts: the charitable remainder annuity trust and the charitable remainder unitrust. A charitable remainder annuity trust provides for a fixed payment, as determined at the inception of the trust and distributed at least annually, contrasted with a charitable remainder unitrust which provides for distributions based upon a fixed percentage of the fair market value of the assets, calculated annually.

Significant tax, as well as non-tax benefits can be realized through the use of a charitable remainder trust. Charitable remainder trusts can prove to be a valuable tool assisting donors in reducing current income taxes, strengthening cash flow, shifting wealth, minimizing estate taxes, in addition to transferring significant wealth to charity.

Document Type

Restricted Thesis

Recommended Citation

Johnson, Larry J., "Charitable Remainder Trusts - Technical Analysis and Planning Opportunities" (1994). All Theses, Dissertations, and Capstone Projects. 237.
https://griffinshare.fontbonne.edu/all-etds/237