Case Studies and Articles

Just How Popular Are Those Charitable Trusts? – Henry & Associates

Just How Popular Are Those Charitable Trusts? – Henry & Associates

Just How Popular Are Those Charitable Trusts?

CRT Survey

Clients and professional advisors assume that with all of the recent publicity about the use of charitable remainder trusts that there must be millions of them in existence.  The reality is that while they’re talked up as great financial and estate planning tools by many advisors, there are actually relatively few charitable trusts operating.  The latest data from the IRS reports that about 100,000 charitable trusts are recognized and properly filing informational returns, and while there are a few “stealth trusts” out there, the reality is that few charitable remainder trusts have operated since they were first authorized under §664 in 1969.

What’s that mean?

With so few trusts established to control the $76 billion in CRT assets it’s no wonder that financial and tax professionals concentrate instead on the more traditional and lucrative IRA, pension and non-qualified retirement planning opportunities with $10 trillion in assets.  As a result, very few advisors really understand how those split interest trusts are designed, drafted, funded and operated.  Add to that mix of trust creation tasks, the opportunities for confusion and mismanagement are practically limitless.  After consulting with a number of dissatisfied trustees, trustmakers and trust beneficiaries, it has become apparent that too many trusts have been “sold” to client-donors without adequate disclosure, especially when there’s a lot of volatility in the market.  Too many money managers fail to understand that investments inside charitable trusts can’t be managed like regular endowment funds or pension accounts if both the income and remainder beneficiaries are going to be satisfied.

Why Use Custom Trust Documents and Not IRS Prototypes?

Because it allows for:

  • Donor/Trustmaker may act as CRT trustee
  • Modifying trustee powers and using a special independent trustee
  • Charitable remainder interests may be made revocable
  • Allowing revocable and multiple ( >2 ) income beneficiary interests
  • Principal may be distributed to charity before the CRT matures
  • Using multiple charitable remainder interests to meet donor goals
  • Using multi-generational/non-spousal income beneficiaries
  • Defining “income” (DNI) for net income and “spigot” trusts
  • Accepting closely-held assets when funding the CRT
  • Accepting testamentary and IRD asset contributions
  • Distributing assets in kind when cash flow is limited
  • Unbundling trustee, investment and administrative functions
  • Modifying investment objectives, e.g., tax efficient income

Sometimes donors are unhappy with the results of their trusts, here’s a question from an advisor:

“Any ideas on whether my client can set up a charitable trust and yet remain completely anonymous?  Can you point me to where I might find guidance on this issue?  A few years back my client set up a CRUT and CLAT with a college, and was completely turned off by the publicity and notoriety he received from that donation.  He has another charity in mind for more gifts, but to avoid the publicity will he have to settle for a testamentary charitable gift?”

Last Updated: February 17, 2003

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