How do Charitable Remainder Trusts work?
A remainder trust (CRAT = annuity trust; CRUT = unitrust) is, itself, a tax-exempt, because at the death of the settlor or the end of the term the balance of the trust will go to a charity. Accordingly, the trust can receive property at its fair market value (not at the settlor’s basis) and can generate a tax deduction for the present value of the remainder (see discussion of GRATs and GRUTS above). This can allow for the freeing up of appreciation trapped inside the property (because the property cannot be sold without generating capital gains), and its conversion into a stream of income for the settlor. The immediate tax deduction may be sufficient to pay for an insurance policy to replace for the heirs, in whole or in part, the remainder going to the charity (see ILIT discussion above). However, there should be genuine charitable intent since it is probably not possible to fully avoid real net value after taxes going to the remainderman; there have been anti- abuse rules put in plac
