A Charitable Remainder Trust distributes income to a donor or other beneficiaries for their lives, or in some cases, a specified term of years. Upon the termination of the trust, after the death of the final beneficiary or after the term of years, all assets in the trust will be distributed to charitable entities designated by the trust document. Whitman College will commonly serve as trustee for no fee as long as the college is named a remainder beneficiary of the trust. Whitman works with Kaspick & Company, a planned gift asset manager and administrator, for assistance with the operation of Whitman's portfolio of planned gifts.
Charitable remainder trusts offer many opportunities to address specific goals and situations for donors. For example, charitable remainder trusts are frequently used as a means of providing supplemental income during retirement, and can be especially attractive as a way to convert appreciated, low-yielding assets into a high-yielding diversified portfolio without incurring capital gains tax. Charitable remainder trusts can even hold more complex assets including real estate and stock of privately held corporations. Increasingly, charitable remainder trusts are becoming powerful tools for transferring wealth via an income stream to heirs while also creating a significant gift for charitable organizations.
Charitable remainder trusts have two basic structures:
Charitable Remainder Unitrusts (CRUTs)
CRUTs may accept a wide variety of assets and distribute payments to beneficiaries based on either a fixed percentage of the value of the assets in the CRUT or the net income generated by the assets in the trust. A hybrid of both payment structures is also used, commonly when real estate or illiquid assets are held by the CRUT.
Charitable Remainder Annuity Trusts (CRATs)
CRATs are appropriate for liquid assets, such as cash or marketable securities, and distribute a fixed dollar payment annually, although the payments may be in more timely installments. It is common to use CRATs as a method to fund a recurring expense, such as life insurance premiums.