Annuity Trust vs. Unitrust: Understanding the Differences Between 2 Types of Florida Charitable Remainder Trusts

For high net worth Florida residents looking to incorporate charitable giving into their estate plan, a charitable remainder trust (CRT) offers many potential benefits. A CRT is a type of irrevocable trust where the grantor donates assets to a not-for-profit charity, such as a university or other 501(c)(3) organization, but retains an income stream for themselves (or another non-charitable beneficiary) for a specified period of time. In other words, the charity receives the “remainder” of the trust assets once the non-charitable beneficiary dies or the trust provides that income payments must cease.

There are actually two types of CRTs recognized in Florida: a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT). Below is a brief explanation of the differences between the two and how they can affect your overall tax and estate planning situation.

Charitable Remainder Annuity Trusts

In a CRAT, the trust pays the non-charitable beneficiary a fixed annual amount (annuity) based on the initial value of the trust’s assets. The grantor must also fund the entire CRAT upfront. Once created, no additional contributions to the trust are allowed. And since the annuity is fixed, the amount paid to the non-charitable beneficiary will not vary based on any change in the value of the trust’s assets.

Charitable Remainder Unitrust

A CRUT, in contrast, pays the non-charitable beneficiary a fixed percentage of the trust’s current value each year as opposed to a fixed annuity. This means the value of the trust must be recalculated annually to account for any increase or decrease in the value of its assets. The grantor can also make additional contributions to a CRUT after it is established.

Two Simple Examples

Joseph wants to fund a charitable remainder trust for the benefit of the college he attended. He funds a CRAT with $500,000 in assets and specifies that he will receive a 5% annuity each year for 10 years or until he dies, whichever occurs first. Under this arrangement, the trust pays Joseph a fixed $25,000 (5 percent of the original trust value) each year for the next 10 years, after which the remainder is paid over to the college.

Meanwhile, Chloe wants to create a charitable remainder unitrust to benefit her favorite animal welfare organization. She initially funds a CRUT with $500,000 in assets. Like Joseph’s CRAT, Chloe’s CRUT specifies that she will receive a 5 percent payment from the trust each year for 10 years or until she dies. But since this is a CRUT, that payment is based on an annual revaluation of the trust’s assets, so in some years Chloe may receive more or less than $25,000.

Contact a St. Petersburg Charitable Remainder Trust Lawyer Today

Charitable remainder trusts can provide significant tax advantages to you during your lifetime. But these trusts need to be carefully created and managed to maximize any potential benefit. Our St. Petersburg charitable remainder trust lawyer can assist you in this area. Contact Drude Tomori Law today at 727-300-8900 or contact us online to schedule a consultation. We serve clients in St. Petersburg, Lakewood Ranch, Bradenton, and Sarasota.