Legally Speaking: Estate Planning and You, Part III
Charitable Trusts are another popular way to provide the donor with income and estate tax savings. There are two categories of charitable trusts: The Charitable Remainder Trust and the Charitable Lead Trust.
In the Charitable Remainder Trust (either a Charitable Remainder Annuity Trust (CRAT) or Charitable Remainder Unitrust (CRUT)) a donor makes a deferred charitable gift to an irrevocable trust. The donor receives an income tax deduction for the year the trust is established. When the donor dies, the estate receives an estate tax deduction at the time of death. The donor keeps the right to an annual annuity or unitrust payment for a number of years, for life or for the lifetime of some other named beneficiary, and the charity receives the remainder of the trust when that period terminates. This allows the charity to benefit and the donor to keep an income stream from the property. Another benefit is that the charity can sell the asset in the trust and replace it with other, perhaps more rapidly appreciating assets. This would give the donor the advantage of an increased income stream and allows the charity to diversify without paying additional taxes.