This is an excellent planning tool and is useful in a variety of planning situations. One of the most common situations where a Charitable Remainder Trust (CRT) is used is in the sale of appreciated assets. A CRT pays you first and your charities second (i.e. the charities get what’s left — the “remainder”). You get to use the property placed in the CRT for a number of years via an annuity payment from the trust. At the end of the annuity term, the remainder goes to your charities. Even though the charity receives its gift in the future, you will receive an immediate income tax deduction based on the projected future gift. This strategy works especially well with highly appreciated property because the CRT can avoid capital gains taxes on the sale.
There are many variations of CRTs with similar names (for example CRAT, CRUT, and NIMCRUT) that have slightly different terms. Payments can be made for a specific number of years or for the life of one or more people. The annual payments can be fixed, based on a percentage of the assets, or based on the net income of the trust. There’s enough variety to fit just about any situation.