Charitable Remainder Trust
Estate planningGlossary term
Definition
An irrevocable trust that provides income to the trust creator or other beneficiaries for a specified period, after which the remaining assets are donated to a designated charity. This type of trust offers immediate tax benefits through a charitable deduction, provides a steady income stream, and supports philanthropic goals. It is particularly useful for people who want to donate appreciated assets while avoiding capital gains taxes and maintaining income.
Related terms
- Irrevocable TrustA trust that generally cannot be changed, modified, or revoked once it has been established, effectively removing the assets from the grantor's ownership and control. Because the assets are no longer considered part of the grantor's estate, irrevocable trusts can provide significant estate tax benefits and asset protection from creditors. They are commonly used in advanced estate planning strategies where tax reduction and wealth preservation are primary goals.
- TrustA legal arrangement in which one party, called the trustee, holds and manages assets on behalf of another party, known as the beneficiary. Trusts can be used to control how and when your assets are distributed, potentially reduce estate taxes, and avoid the probate process. There are many types of trusts, each designed to address specific financial and estate planning goals.
- Estate TaxA federal or state tax imposed on the transfer of a deceased person's assets to their heirs, calculated based on the total value of the estate above a certain exemption threshold. As of recent years, the federal estate tax exemption is quite high, meaning most estates do not owe federal estate tax, though some states impose their own estate taxes with lower thresholds. Proper estate planning using trusts and other strategies can help reduce or eliminate estate tax liability.
- Gift TaxA federal tax applied when someone transfers money or property to another person without receiving something of equal value in return, above the annual exclusion amount set by the IRS. The annual gift tax exclusion allows individuals to give a certain amount per recipient per year without triggering any tax reporting requirements. Gifts above the annual exclusion count against your lifetime estate and gift tax exemption.
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