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A charitable remainder annuity trust (CRAT) provides annual disbursements to a beneficiary, with a fixed payment issued to the donor each year. The remaining assets are transferred to a designated charity upon the donor’s death, and the trust can be structured to allow all assets deposited to generate annual income for the beneficiary. An administrator must manage the trust, and the value of the trust can be used as a tax deduction. The donor can amend or revoke the trust, but there may be financial penalties involved.
A charitable remainder annuity trust, or CRAT, is a trust established to provide annual disbursements to a beneficiary. In most situations, the trust is initially funded with a mix of assets such as cash, bonds, stocks, and other securities. This type of living income plan typically specifies a specific dollar amount that can be disbursed in each twelve-month period and generally must be at least five percent of the current value of the trust.
It is possible to establish an annual charitable income trust as a way to plan for the retirement years. For example, the donor transfers a variety of assets to the trust. Each year, a fixed payment is issued to the donor. Upon the death of the donor, the remaining assets in the trust are transferred to a charity previously designated by the donor.
The charitable remainder annuity trust can be structured to allow all assets deposited in the trust to generate annual income for a specific beneficiary even before the death of the donor. Instead of the fixed annual outlay going to the donor, that payment is sent to the designated charity. Annual contributions to charity continue for as long as the donor is alive. Once the donor passes away, the remainder of the trust is transferred to the charity.
For a charitable remainder annuity trust to function within the regulations set forth in most countries, an administrator must manage the trust. In some cases, the trustee may be the charity that will ultimately receive the full benefit of the trust. Other locations require the administrator to be a third party that can remain neutral. For example, a lawyer, a financial institution such as a bank, or a financial consultant may serve as a trustee.
One of the benefits of the remaining annuity trust is that the value of the trust can be used as a deduction on your annual tax return. This can help the donor manage their tax burden more efficiently. For the recipient of the real estate and other assets held in the trust, the annual outlay helps provide a degree of financial stability, as well as ensure a limited amount of security for the future.
Once a remaining charitable annuity trust is established, the donor still has the option to amend or revoke the trust. However, depending on the current laws and regulations that affect the function of trusts in the country where the CRAT is established, there may be some financial penalties involved when making changes to the structure.
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