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Planning Matters

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Planning Matters

The characteristics of charitable remainder trusts (CRTs) may be derived from an examination of data published by various sources including the IRS, National Committee on Planned Giving (NCPG), and others. An understanding of this information can help improve the overall effectiveness of all involved in the gift planning process.

According to the Internal Revenue Service, some 87,000 CRTs were in existence in 1997. The number in existence today is most likely approaching 100,000 trusts. A number of factors have contributed to the increased use of the CRTs since 1986, including favorable tax laws, increases in asset values, the aging of the donor population and increased interest in the financial planning community.

Who do you trust?

Prior to 1986 most charitable remainder trusts utilized an institution, such as a bank, trust company, or perhaps the charity itself, as trustee. Since then there has been a dramatic increase in “self-trusteed ” CRTs. Some 56% of trusts included in the just released NCPG study (see page 1 of this issue and page 1 of last month ’s Give & Take) were self-trusteed by the donor, or a donor’s family member.

Donors chose a charity or bank as trustee of their CRTs in 16% and 14% of the trusts, respectively. In the majority of the self-trusteed trusts, donors sought out the assistance of a professional in the administration of their trusts.

The increased role of professional advisors is also supported by the NCPG findings. The report found that the majority of CRT donors were first informed about the charitable trusts from their own legal or financial advisors.

According to the NCPG report, over one-quarter of the trusts were initially established with more than $500,000 in assets. Approximately one-third were funded with assets between $100,000 and $499,000. The remaining trusts were established with less than $100,000. Stocks, bonds, and real estate were the primary funding assets. Other surveys in the past have estimated the average value of CRTs at approximately $500,000. If, as noted earlier, the total number of CRTs in existence is approaching 100,000, then somewhere in the range of $50 billion is now being managed for eventual charitable benefit. Assuming the average trust is in existence for some 20 years,this would mean that some $2 billion to $3 billion per year in remainder interests from CRTs is now “in the pipeline.”

The ABCs of CRTs

The NCPG study found that charities are aware of about one-half of the CRTs that are currently in existence and know the value of one-quarter of them. A growing number of trusts provide for the ability to change the charitable beneficiary in the future. Overall, charitable remainder trust donors tend to be older, affluent couples or men with no children at home.

While charitable remainder trusts are very different from bequests and similar planned gifts, it is becoming apparent from recent studies that CRT donors tend to be motivated in much the same manner as bequest donors. As in the case of bequest expectancies, it is increasingly important to discover those who have created charitable remainder trusts on their own, as a strong relationship after the fact can help minimize the likelihood that a donor will decide to change the charitable beneficiary later in life. For more information on charitable remainder trusts and other planned giving information, visit the NCPG Web site at www.ncpg.org.

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