Your rate of return, as expressed by a percentage of the value of the assets in the trust, will not change. If you choose an annuity trust, your actual payment amounts will not change either. If you choose a unitrust, the actual dollar amount received can vary, based on the value of the trust, but the agreed upon rate at the trust’s creation does not change.
An annual payout rate is selected by you at the time the CRT is created (with a minimum rate of 5%). The rates you can choose are based on your age, the terms of the trust, and other IRS guidelines. The annual payout can take two forms:
- Annuity Payment – With an annuity trust, the beneficiary receives a specified percentage each year of the value of the assets placed in the trust at its creation. No additional assets may be added to the trust, and the amount of the annual payout does not vary, even if the value of the trust assets increase or decrease.
- Unitrust Payment – With a unitrust, the amount paid each year is a specified percentage of the value of the assets in the trust on the first day of each year. Assets can be added to the unitrust, and the annual payment can vary, depending on the value of the assets in the trust at the beginning of the year.
There are three key tax advantages:
- A charitable income tax deduction based upon the value of the interest that will pass to charity.
- If you fund a CRT with an appreciated capital asset prior to the sale of that asset, you can avoid all tax on any capital gain from the sale.
- When the CRT ends, and the trust assets pass to charity, no death taxes will be owed on the assets in the CRT.
- Affords flexibility as to the types of assets that can be contributed (cash, property, non-cash assets, securities, cryptocurrency, etc.).
- Can be personalized for family legacy giving.
- Enables you to give to ministries in other countries while still receiving tax benefits on your U.S. income.
- Benefits your estate plan by reducing tax obligations owed by your estate.
- Allows you to respond to changing estate and gift tax rates.
- Permits flexibility in adjusting your estate plan’s charitable goals.
- Allows you to support the ministry of an individual worker and still receive a tax benefit.
- Allows greater flexibility in determining the payout rate than other charitable giving vehicles.
- Enables you to benefit multiple charities.