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If there is more than a 5% probability that the CRT would be exhausted before the charitable remainder vests, the charitable remainder trust fails and no deduction is available. irs home page Irs-deductions. The donor receives a charitable deduction based on the present value of the charitable remainder interest. The income received from the trust is treated first as ordinary income, followed by capital gain, non-taxable income and then a return of corpus. The entire trust is excluded from estate tax. irs home page Irs tax rates. The client can also create a CRT effective upon his death. Rather than his or her heirs receiving assets outright, the heirs would receive the income and upon their death or upon expiration of the income term, the balance of the CRT would be distributed to charity. Charitable remainder trust can be structured as an annuity trust ("CRAT") or a unitrust ("CRUT"). irs home page State income tax forms. Payments under a CRAT are expressed as a sum certain or a fixed percent of the initial value of the Trust. Payments under a CRUT are expressed as a fixed percent of the annual fair market value. Additional contributions can be made to a CRUT. A CRT is a perfect vehicle for avoiding capital gains tax and receiving income from the full value of the donated asset. If a capital gain asset is sold outside the CRT, the donor receives less income since only the net proceeds (proceeds less tax) are available for investment. In contrast, if an asset is contributed to a CRT, the full value is available to produce income. If the asset contributed to the CRUT is non-income producing (example, land), it is not necessary to immediately sell the asset to produce income. A CRUT can be structured to pay the lesser of the actual income or a fixed percent ("NICRUT"). It may also provide that any accumulated deficiency -- if the actual income is less than the fixed percent -- can be paid in later years when the actual income is greater than the fixed percent ("NIMCRUT").
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