Learn how your nonprofit can work with donors to establish a charitable remainder trust that will support your organization for years to come.
By Elizabeth McCray, nonprofit strategies manager
A Charitable Remainder Trust (CRT) is one of the most common ways your donors can use their retirement assets to make a charitable gift. Over the past several years, many people have realized that they have more assets than they will need in retirement and have chosen to use some of that wealth to support their favorite charitable causes.
According to a 2021 report from the Investment Company Institute, America’s retirement assets totaled $37.4 trillion as of September 2021, accounting for 33% of total household wealth.
What is a Charitable Remainder Trust (CRT)?
A CRT is a special type of tax-exempt charitable trust that provides income to individuals for a period of time and then the remaining value is distributed to your organization.
Why Would Someone Want to Establish a Charitable Remainder Trust?
The reasons are relatively simple. Usually, the creator of the trust (the donor) would like to create a stream of income for themselves and/or other people. They also like the idea that whatever is not distributed to those individuals will be used to support their favorite nonprofits.
Another attractive feature is that these trusts are typically exempt from taxation. The assets contributed to the trust may entitle the donor to a charitable income or estate tax deduction.
A CRT can be funded during life or after death. One popular method for funding a CRT at death is to name the trust as the beneficiary of a retirement account.
In cases where the retirement account is left directly to family or friends, these individuals can access the entire account at once. If left to the CRT, the income beneficiaries will receive a pre-determined distribution from the trust every year. This helps to protect the remainder that will eventually go to charity. It also allows the donor to exercise a bit of control over how much is distributed to their beneficiaries.
How Charitable Remainder Trusts Work for Donors
After her husband Hector’s passing, Emma decided it was time to downsize her home. With the help of her advisor, she transferred ownership of her home to a charitable remainder trust with the Saint Paul & Minnesota Foundation, naming the Foundation as the trustee. The home was sold at market price and without any capital gains taxes.
The sales proceeds were then used to create a lifetime stream of income for Emma – meaning each year she is able to use the income for her needs and recommend grants to nonprofits through her donor advised fund. At the end of her life, the remaining trust assets will be transferred to her CRT to continue supporting causes in the future.
How Your Nonprofit Can Get Started with CRTs
A CRT is a complex planning tool and should only be created after consulting with qualified legal teams and tax advisors. Learn how to talk to your donors about the benefits of donating retirement assets such a charitable remainder trust in our nonprofit planned giving video series.
To speak with our team about the benefits of starting a nonprofit endowment fund, contact me or Mariah Brook.
The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.
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