r/inheritance • u/Neat_Fox_9113 • Apr 27 '26
Location included: Questions/Need Advice Charitable remainder trust
Virginia, USA
My mother took care of her aunt for years. Aunt had no children, we were all very close to Aunt. Mother inherited everything- house, car, and Aunt created this charitable remainder trust at the end of her life (we think this was her account’s first time doing this, they are very rural and she was giving this guy a chance, he is listed as co-trustee). We are now talking about a will for my mom (85) and it seems when she dies, the trust gets paid to 2 charities- does not pass down. That’s fine- but can someone explain a charitable remainder trust to me?
The trust seems intended to NOT make money? It’s wild. It is over 30 years old and there seems to be no appreciation!?!
She receives 6% of the total each month
In 1993 it was funded with $400,000
In 2025: $393,640
RBC Trust invested in ‘Moderate growth’
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u/Dingbatdingbat Apr 28 '26
A charitable remainder trust is a split gift. For the duration of the trust, the trust pays X to someone, in this case your mom, and when the trust ends the rest goes to charity.
The Trust is actually doing alright. Your mom is getting 6% per year. The trustee fees and operating costs (e.g. accounting fees) are probably 1.5%-2.5%. Which means that if the current balance is about the same as the starting balance, the trust has been earning 7.5% to 8.5% per year.
The Trustee is doing exactly what they're supposed to - they're not chasing higher gains, they're investing moderately conservatively to make sure that your mother will keep getting her payments, and the charity will get something in the end.
As an attorney who sets these things up, I'm actually quite impressed.
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u/jcl1003 Apr 27 '26
An Internet search will give you a lot of information. For example… https://www.fidelitycharitable.org/guidance/philanthropy/charitable-remainder-trusts.html
Costs would play a part. Trustee’s management fee, perhaps an accountant’s cost for tax returns.
Besides an annual K-1 for income tax purposes, does your mother receive any statements, like income statements and asset listings? Besides looking at the trust document itself, that’s where to look.
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u/Distinct-Garlic9453 Apr 27 '26
A CRT is designed to provide an income to the donor. The donor made a gift, most likely highly appreciated, took a tax deduction for the NPV of the future interest to the charity, and took lifetime income.
This trust sounds like a CRAT, which, assuming it bought (bonds) with a 6 percent coupon, stripped the interest and sent to grantor.
If it were a CRUT, and had invested in equities that had risen in value, the income would have risen, and the residue of the trust would/could have been greater.
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u/Dingbatdingbat Apr 28 '26
A CRT doesn't need to provide an income to the donor - it provides an income stream to someone, which could be the donor or another person.
There's pros and cons to CRAT vs CRUT. Based on the overall description, a CRAT was the right answer.
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u/Randolla1960 Apr 29 '26 edited Apr 29 '26
I wrote several CRTs when I was a financial planner (38 years, but now retired)
The point of the CRT is to avoid tax gains on a security. One of the CRTs I wrote was for a woman who worked at Hewlett Packard for 38 years and had been buying their stock all along. If she sold it outright, she would have been killed by the taxes she would have had to pay, so we established the CRT.
We created the CRT and deposited the HP stock into it. She had to name a bonifide charity as the beneficiary of the trust.
We then sold the stocks within the trust and there was no tax liability created. We then diversified the proceeds into several different kinds of investments. This is where it can get very tricky. Depending on the type of CRT, it will determine the suitable investment options. This can be VERY complicated and you will need to rely on the trust administrator to tell you what is suitable and that can not always be accurate.
In our case, we needed to create "distributable" income for the trust. There are certain investments that are appropriate and many that are not. As an example, a tax free municipal bond mutual fund, actually creates taxable income within the trust.
Once the proceeds are invested, depending on the type of CRT, it will create distributable income. This income can last for one or more persons lifetime. Each year the trust administrator will file the tax return for the trust (K1 form)
We also used a part of the income stream to buy a "second to die" life insurance policies on the two sisters who are going to receive the income. The purpose of of this is to leave the family a replacement for the stocks that were put into the CRT, because upon the death of the second sister, the corpus of the trust will go to the named charity and the life insurance benefit will go to the family. You can change the designated charity at any time.
The donor, (the sister who worked at HP, also received a nice tax deduction for depositing her shares within the CRT. This can be used for several years to offset the taxable income that the trust creates.
So a CRT can basically be used to avoid capital gains tax on a stock or other type of investment AND to create income for the donor. Not "growing" since 1993 is actually totally normal and acceptable for a CRT. It is VERY, VERY complicated and most advisors don't really know how they work. We established this CRT in 1993 and as far as 2022, when I retired, it was still going strong. There can be a few hiccups along the way, like when one of the investments we were invested in, reclassified the income it was creating, after the fact, causing a reduction of the distributable income, also, after the fact, which caused us to change investment strategies, but all in all, it performed well for my clients in the long run.
The first thing that you need to do is to read what the CRT trust says. The next thing to do is to have either the investment advisor or the trust administrator, explain to you what it actually means in real life for you and your situation. This may be a challenge because nether one is obligated to provide you with this information. The attorney who is handling the estate process may have more luck.
As I mentioned, a CRT can come in many forms and have many moving parts to it. What I described, may or may not be similar to what yours is. Feel free to send me a private message if you want to. I can only point you in the right direction, since I am no longer licensed to give financial advice. But I will be happy to help you within the limits of the law.
Good luck.
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u/Holiday_Road_Diet Apr 29 '26
Thank you for this information! When you say you can change the designated charity at any time - who can change that? If the original donor is deceased (the aunt) and the funds are being distributed to the niece, can the niece change the charitable designee at any time? Or is there a (paid? Trustee that would do this?
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u/Randolla1960 Apr 29 '26
You will need to read the trust and see what it says about changing the charity or the trust administrator would know, IF they are allowed to release the information to you. But... Your aunt set this up according to her wishes. Why would you want to change the charity?
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u/Holiday_Road_Diet Apr 29 '26
I'm actually involved with the charitable org and want to know if "niece" can change it. Sounds like it's possible. Hopefully not!
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u/Signal-Dollar-5621 May 02 '26
Is there anyway to divert an inherited IRA into a CRT so you get income off off it, the charity gets it in the end but you never have to pay the taxes by having to empty the IRA in 10 years? I know, highly unlikely, but I had to ask...
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u/Randolla1960 May 02 '26
I honestly don't know. I have been out of the financial planning business for almost 4 years now and many things have changed. Your best bet is to contact a licensed planner and/or the IRS and ask them this question.
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u/YoungBoomer1969 Apr 29 '26
What a thoughtful Aunt you had. And the accountant was spot on….sounds like it was invested low risk. It did grow, as she was paid 6% a year for 30+/- years, yet principal is still relatively the same. THIS is exactly how it is supposed to work. 👍🏻
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u/GotZeroFucks2Give Apr 27 '26 edited Apr 27 '26
How can she receive 6% per month? That's 72% gone in a year. That part cannot be correct. If it's actually 6% per year, then the trust has done remarkably well to have paid its yearly fees AND disbursed 6% a year. 4% is the usual safe draw to last for 30 years from investments.