One way to provide for you and your loved ones while giving something back is with a charitable remainder trust (CRT). For the discerning donor, a CRT also allows you to “test-drive” a charity and decide whether you want to double down on your gift or divert resources to causes you deem more worthy — a consideration that may have added importance amid a time of declining trust in charities.
How a Charitable Remainder Trust Lets You Support Causes Before Committing Long-Term
With more than 1.8 million recognized 501(c) organizations in the U.S., choosing a charity to donate to can be a difficult decision.
Should you fund clean water projects, local arts, or scholarships? Give money to rare disease research? Protect endangered species? The list of causes seems virtually endless.
In 2024, U.S. donors gave the most to health-related causes, followed by poverty, young people, religious organizations, disaster relief, and animal welfare, according to CAF America.
Most donors focus their giving on a few issues. The typical donor supports two to three different causes and prioritizes domestic efforts in their local communities.
Keeping donations close to home might allow donors to see the impact of their donation more directly. But even after choosing a charity to support, donors may question how effectively the charity is fulfilling its mission.
Donors are right to ask questions about charities and should do so before donating. They can also track dozens of key metrics — including expenses, the number of people served, and more — to measure a charity’s impact and success.
It’s not unusual to have regrets about donating to a charity, particularly when donors feel a lack of transparency from the organization, doubt their donation’s effectiveness, or worry about mismanagement of funds and other wrongdoings. However, it might take an actual scandal — like the revelation that a charity is disbursing only a fraction of funds to beneficiaries — to trigger donation regret, an outcome that research shows reduces future donation willingness.
Initial indecision about choosing a charity, the chances for regret about a chosen cause, and the fact that the causes most important to us change over time can lead to what might be characterized as “philanthropic commitment anxiety.”
You may be eager to give and don’t want to keep putting it off, but also hesitant to commit to a cause. With a charitable remainder trust as a vehicle for philanthropic exploration, you can “test-drive” your giving. You not only get income now, but you also can observe your chosen charity (or charities) in action and decide whether there’s a good long-term fit — or if your money should go elsewhere.
To give a prospective charity a trial run using a CRT, consider the following potential strategies:
“Multiple Beneficiary” Approach
- How it works: When setting up the CRT, designate several charities as beneficiaries to receive a portion of the remainder assets upon the trust’s termination.
- Benefits: Support multiple organizations simultaneously, receive a firsthand look at how each charity operates and uses funds, and compare their effectiveness and impact over time.
“Phased Distribution” Strategy:
- How it works: If using a Charitable Remainder Unitrust (CRUT), structure it to distribute varying percentages of the trust assets to different charities at different times.
- Benefits: This more dynamic approach allows you to adjust distributions based on your evolving assessment of each charity. You can increase support for high-performing organizations and decrease support for those that don’t meet expectations.
“DAF as Beneficiary” Method:
- How it works: Name a Donor-Advised Fund (DAF) as the sole beneficiary of the CRT. You can then make grants from the DAF to various charities over time, even after the CRT term ends.
- Benefits: The added flexibility of a DAF means you can continue to evaluate charities even after the trust term ends and adjust your giving strategy as needed from a centralized platform.
“Trustee Discretion” Option:
- How it works: The CRT document can explicitly grant the trustee discretion to change charitable beneficiaries under certain circumstances, such as when a charity’s work no longer aligns with the donor’s original intent or demonstrates ineffectiveness. It can alternately define a broader charitable purpose (e.g., environmental conservation) and give the trustee discretion to select specific organizations that align with that purpose.
- Benefits: The donor is giving up some control by empowering a trustee to choose charitable beneficiaries, but a CRT set up in this way has more flexibility to ensure the trust’s funds support relevant and impactful causes as circumstances change and charities come and go.
These are just a few of the ways to give charities a trial run prior to including them permanently in your legacy. Because CRTs are so versatile, there are other ways to use them as well.
By adding different provisions, for example, you can:
- use a shorter fixed term (say, five to 10 years) to limit your commitment and fast-track insights;
- use a fixed payout versus a variable payout to evaluate growth potential;
- make your heirs income beneficiaries to educate them about giving;
- select diverse causes with equal or varied shares to uncover where your true passion lies; or
- use a CRT as an alternative to a “stretch” IRA for inherited retirement accounts.
To determine the best Charitable Remainder Trust structure and strategy for your philanthropic goals get in touch the estate planning attorneys at Kurre Schneps.
