❗Key Takeaway: We offer three types of Charitable Remainder Trust: Standard CRUTs, NIMCRUTs, and Flip CRUTs. Although everyone's preferences and circumstances are different, Standard CRUTs can be a good fit for customers who are willing to give up some returns in exchange for relatively predictable, consistent payouts; NIMCRUTs typically maximize total returns; and Flip CRUTs generally work best for illiquid assets that won't pay out for awhile.
As the Biden Administration and Congress work together to raise revenue by ending several long-standing tax- and estate-planning strategies, one common tool has remained untouched, and -- good news! -- it's a tool that is a fit for many: the Charitable Remainder Trust.
There's still plenty that can happen before any of the proposed provisions becomes law. (Cue the collective memory of Schoolhouse Rock, at least for people of a certain age.) Still, given the potentially renewed importance of these trusts, we thought it was time to go back to basics. In today's post, we'll offer a simple overview of the various types of Charitable Remainder Unitrusts (CRUTs), with examples and a few thoughts on why you might use each one.
There Are Different Types of CRUTs?There are! In fact, there are three main versions:
- The standard Charitable Remainder Unitrust (CRUT);
- The Net Income With Makeup Charitable Remainder Unitrust (NIMCRUT); and
- The Flip Charitable Remainder Unitrust (Flip CRUT).
- The key: Tax-exempt status. This is the big one, and likely the reason you've read this far. All of the Charitable Remainder Unitrusts we offer are tax-exempt, which means that neither you nor the trust will pay federal or state income taxes on your capital gains (except in a few very rare circumstances) as long as the money stays in the trust. Instead, you pay taxes only when you receive your distributions similar to an IRA.
- These are "irrevocable trusts." This is a term of art, but it means what you think it means: These trusts cannot be modified (except in a few narrow cases) after they are created.
- There are two lengths available. Each of these trusts can last for a defined period of up to 20 years (a "term CRUT") or for the lifetime(s) of single or multiple beneficiaries (a "lifetime CRUT").
- You aren't the only beneficiary. All Charitable Remainder Unitrusts are what's called "split-interest trusts." This means that there are two beneficiaries, and each has an interest in the trust's assets. In the case of the trusts we're discussing today, there is always an "income beneficiary" who receives payments from the trust during its term (usually the person who puts assets into the trust) and a "remainder beneficiary" (a charity or donor-advised fund chosen by the grantor) that receives whatever is left in the trust at the end of its term.