According to Indiana University, in 2023 alone, Americans gave and donated an estimated $557.16 billion to U.S. charities.
If you want to become part of those statistics yourself, you have several options, including multiple types of charitable trusts. With these, you can positively impact a cause you care about. You can also enjoy unique benefits, such as reducing what you owe the government and getting a reliable income for years.
Read on as we’ll discuss U.S. charitable gift trust types to help you decide which best suits your needs.
Charitable Lead Annuity Trust (CLAT)
A CLAT is an irrevocable type of charitable trust. Like other irrevocable trusts, such as an Irrevocable Life Insurance Trust (ILIT) or Spousal Lifetime Access Trust (SLAT), a CLAT is no longer amendable once you, the grantor or donor, create it. The only way to change it is with the consent of all beneficiaries or with a court order.
With a CLAT, the charity receives monthly or yearly payments. It can be for a specified number of years or throughout your lifetime. Depending on your chosen organization, you may be able to make a deduction claim of 30% or 50% of your adjusted gross income (AGI), per IRS.
Then, at the end of the defined period, the remaining CLAT assets get distributed to non-charity beneficiaries (e.g., your descendants). So, with a CLAT, you can contribute to your favorite charity, enjoy tax breaks, and transfer wealth to your heirs.
Charitable Remainder Annuity Trust (CRAT)
A CRAT, like a CLAT, is also irrevocable. The primary difference is that a CRAT generates a fixed or variable income stream for you and your non-charity beneficiaries. Another difference is that once the CRAT’s term ends, the remainder gets distributed to your chosen charity or trust grant organization.
Also, note that you can no longer make additional contributions once you’ve created a CRAT and cannot withdraw assets already in it.
A CRAT is tax-exempt, and you, the grantor, can enjoy an up-front tax deduction for the assets you place in the trust. However, the income distributed to your non-charitable beneficiaries is taxable like ordinary income. If you donate property rather than cash, the sale funds will be tax-exempt, and you can avoid capital gains tax.
Charitable Remainder Unitrust (CRUT)
While a CRUT is also irrevocable, it offers more flexibility and lets you make additional contributions. It also pays you and your non-charity beneficiaries a yearly income based on your set percentage.
However, note that a CRUT’s assets undergo yearly valuation. For this reason, the amount generated and distributed may also change.
According to the IRS, the payments must be between 5% and 50% of the assets’ fair market values. You can also specify the trust’s length: up to 20 years, your lifetime, or the lifetime of one of your non-charitable beneficiaries. Then, once the trust’s term ends, the remainder of the assets goes to your favorite charity.
Consider These Types of Charitable Trusts
And there you have it, your guide to the types of charitable trusts you can donate to your favorite organizations, including CLATs, CRATs, and CRUTs. Now that you know more about them, their tax perks, and which ones generate income, you can make a more educated choice.
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