California allows you to set up a charitable remainder trust, or CRT, and include it in your estate plan. A charitable remainder trust pays out income to the beneficiaries during your lifetime and transfers what’s left in the trust to the designated charity after you or the last beneficiary dies.
Features of CRTs
One of the unique aspects of a charitable remainder trust is that you could include yourself as a beneficiary. The term you choose for the trust could be for a set number of years or lifetime. In addition to cash, you could donate real estate, securities and other appreciating assets.
When you set up a charitable remainder trust, you can choose for your beneficiaries to receive a specific amount per year or a specific percentage of the trust per year. A CRT that distributes a fixed amount is a charitable remainder annuity trust, or CRAT. CRTs that distribute a fixed percentage are charitable remainder unitrusts, known as CRUTs. You can make additional contributions to a CRUT but not to a CRAT.
Limitations of CRTs
You can’t change the non-charitable beneficiaries or payment amounts, and any contributions you make to a charitable remainder trust are irrevocable. Another limitation of CRTs is that you can’t add S-corp stocks to them. Some CRTs allow you to change the charitable beneficiary. It’s important to read the terms of the trust you’re thinking of setting up during estate planning to know any limitations and rules it will have.
A charitable remainder trust is one of the ways you could reduce your estate-related taxes and transfer more of your wealth to your chosen beneficiaries. You could deposit several different types of assets into this type of trust, but some types of CRTs only allow one deposit.