One or more charities are named as recipients of assets remaining in the trust after the period of the beneficiary's income interest. The following chart illustrates a simple CRT where the grantor is the income interest beneficiary. The grantor is not permitted to make additional contributions to a CRAT after the initial contribution. Grantors may make additional, deductible contributions to a CRUT after the initial contribution. Any appreciation in the CRUT assets will increase the amount of annual income payments to beneficiaries, because these payments are based on the current FMV of the CRUT assets.
Additional limitations apply if the charity is a private foundation.
Earnings on CRT assets are generally exempt from federal and state income taxes, provided specific procedures are followed. Donors with highly appreciated assets can contribute the assets to a CRT, and the CRT can then sell the assets without incurring federal or state taxes on the gain. The CRT could then reinvest the proceeds from the sale, and annual income payments would be based on the FMV of the assets originally contributed. Tax-free payment of trust principal. These are some thoughts to consider about charitable remainder trusts.