What Are Charitable Remainder Trusts?

For many Summit, New Jersey residents, establishing a trust is an important part of estate planning. While estate plans have various components that almost always include a will and advance directives, numerous estate plans also include one or more trusts. Depending on an individual’s circumstances, a trust can be necessary to provide for a disabled adult child or to ensure that a loved one cannot spend inherited money too quickly or recklessly. There are various types of trusts that can be established under New Jersey law, and their benefits and limitations can vary. One particular type of trust that can be established in New Jersey is a kind of trust known as a charitable remainder trust (CRT). What is a charitable remainder trust and who should create one?

Purpose of a Charitable Remainder Trust 

A charitable remainder trust is a type of irrevocable trust that allows the grantor (i.e., the party who makes the trust, also known as a trustor) to generate income from the trust while also donating to a charity. Charitable remainder trusts are often known as “split income” or “split interest” trusts that can benefit you as the donor, as well as the charitable beneficiary. You or any beneficiary of your choosing can receive the income from the charitable remainder trust for a specific period of time, and then the remainder will be paid to the charity or used for charitable purposes.

Charitable Trusts Versus Charitable Remainder Trusts 

It is essential to know that a charitable trust is distinct from a charitable remainder trust. A charitable trust in New Jersey is a type of trust that is “operated exclusively for religious, charitable, scientific, literary, or educational purposes,” according to the New Jersey Division of Taxation. A charitable trust must be operated exclusively for such a purpose and no beneficiary can receive income from a charitable trust who is a noncharitable beneficiary. Differently, as we discussed above, a charitable remainder trust allows a noncharitable beneficiary to receive income from the trust for a set amount of years, with the remainder being paid to a charitable organization or used for a charitable purpose.

Three Types of Charitable Remainder Trusts 

There are three types of charitable remainder trusts, often known by the acronym CRTs. Those three types of CRTs include:

• Charitable remainder annuity trust (CRAT), which pays a specific amount each year that is at least 5 percent but not more than 50 percent of the amount used to establish the trust;
• Charitable remainder unitrust (CRUT), which pays a percentage of the annual value of the trust; and
• Charitable pooled income fund, which allows different donors to contribute.

Contact a Summit Estate Planning Lawyer Today for Assistance 

Do you have questions about charitable remainder trusts or other types of trusts in New Jersey? When you are considering creating a trust as part of your estate plan, it is essential to have all of the information you need and to make an informed decision with help from an attorney. One of the experienced Summit estate planning lawyers at Dempsey, Dempsey & Sheehan can speak with you today about trusts in New Jersey in addition to any other aspects of estate planning that you want to consider. Contact our firm today for assistance.

Sources:

nj.gov/treasury/taxation/pdf/pubs/tb/tb64.pdf

irs.gov/charities-non-profits/charitable-remainder-trusts#:~:text=Charitable%20remainder%20annuity%20trusts,when%20the%20trust%20is%20established