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CRAT vs CRUT: Compare Charitable Remainder Annuity Trusts and Charitable Remainder Unitrusts I Valur - YouTube
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Hi everyone!
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I’m Mani the CEO of Valur,
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In this video we're going to be talking about
Charitable Remainder Trust
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And the two different types of CRTs, the Charitable
Remainder Unitrusts and Charitable Remainder
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Annuity Trusts,
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to help you understand
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1.
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their key differences,
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2.
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tradeoffs
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3.
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and common situations when people use each
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To start let’s do a little recap on what
Charitable Remainder Trusts are:
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CRTs are a tax-exempt irrevocable trusts that
help you avoid paying taxes when selling appreciated
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assets.
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CRTs allow you to put your assets in the trust
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and defer the taxes on capital gains realized
inside the trust,
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distribute the trust’s income to use for
yourself,
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receive an up-front charitable income tax
deduction to lower your taxes,
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So what’s the difference between the two
types of Charitable Remainder Trusts,
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Charitable Remainder Unitrusts, or CRUTs,
and Charitable Remainder Annuity Trusts, aka
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CRATs.
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Both types of structures are tax-exempt, allow
you to take a charitable income tax deduction
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and entitle you to an at least annual distribution.
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But there is one key difference that can significantly
affect your returns:
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how much is distributed from the trust annually.
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And it’s encapsulated in the trusts’ labels:
A CRAT is an Annuity Trust,
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and a CRUT is a Unitrust.
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What does that mean?
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An Annuity Trust is a trust that provides
fixed payments for the length of the trust’s
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term.
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That fixed amount is
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based on a percentage of the initial value
of the assets
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that are placed into the trust
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when it is set up.
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So, for example, if you put $1 million into
your Annuity Trust
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and chose a 5% payout rate, you’d receive
$50,000 per year,
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no matter how the trust performs — whether
the equity grows 10x or not at all,
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you will receive $50,000 per year.
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A Unitrust, by contrast,
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is a trust that pays out a fixed percentage
of each years trust value
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INSTEAD of a FIXED AMOUNT.
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Since the fair-market value of the trust’s
assets is measured every year,
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the amount that you receive from the trust
will change every year.
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For instance,
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if you put a $1 million of assets
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into your Unitrust and chose a 5% payout rate,
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you’d receive $50,000 in the first year.
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But if your investments do well and the trust
grows to $2 million the next year,
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you’d receive 5% of that new value, or $100,000.
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Critcally Charitable Remainder Unitrusts can
be set up for longer periods
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and can have a higher annual payout rate than
CRATs
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if set up for the same time period due to
IRS rules
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As an exampleto set up a CRUT for your life
you have to be 58,
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while you can setup a CRUT for your life from
the time you are 27 curre
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In addition, Charitable Remainder Unitrusts
or CRUTs
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- have multiple distribution options
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that enable you to control and defer distributions
if you prefer
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and CRUTs allow you to add Assets at any time
to the trust
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while Charitable Remainder Annuity trusts
do not offer either of those options.
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Now, the primary question for most people
is
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how much money they will receive from each
structure if they used it
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Let’s take a look at it in more detail and
jump into an example.
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If you set up a CRUT and CRAT set up for 20
years
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and a $1m in each trust
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with the maximum possible annual distribution
rate
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you would be able to pull out
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approximately $800,000 more
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from a CRUT compared to a CRAT.
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Because you’re signing up for a fixed payout
every year,
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Charitable Remainder Annuity Trusts do bring
welcome certainty,
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but the returns are likely to be lower than
with a CRUT
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assuming normal market returns,
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since your trust assets are likely to grow
over time
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much of those gains will be stuck in the trust
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and will revert to the charitable beneficiary
at the end of the term
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since your distributions don't increase proprtionate
to your trust value with a
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CRAT
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While they would proportionately increase
with
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a
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CRUT
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Alright that wraps it up!
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Hope you enjoyed the video!
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have any questions, or recommendations for
the next video?
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Now
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with one of our specialists or to use our
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Simply visit our website at valur dot io & connect
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A quick word about Valur:
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