How to Benefit From a Charitable Remainder Annuity Trust (CRAT) – Part 3

A taxpayer can establish a CRAT either during the taxpayer's life, or through a provision in the taxpayer's will. If the taxpayer establishes the trust during the taxpayer's life, the taxpayer receives a charitable deduction for income tax purposes, or for gift tax purposes. If the taxpayer establishes the trust through the taxpayer's will, the taxpayer receives a charitable deduction for estate tax purposes. The amount of the deduction equals the fair market value of the property (as of the time of the transfer), less the value of the noncharitable beneficiaries' interest.

The income generated by the charitable remainder trust is not subject to income tax at the trust level. However, the noncharitable beneficiaries are taxed on the amount of distributions they receive. To qualify for special treatment as a charitable remainder trust, and for taxpayers to receive the advantages, a trust must adhere to the strict requirements of the tax laws.

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