What is a Charitable Remainder Trust and is it right for you?

I’ll be honest, when I first heard the words “Charitable Remainder Trust” I felt like Charlie Brown listening to his teacher: “Wah, wah, wah wah.” Financial language can be like that. It makes sense if you’re in the world of finance, but for the average person, it can be confusing. So, what is a Charitable Remainder Trust (CRT) and how do you know if it’s right for you? 

A CRT allows you to make a substantial future donation to Save the Children, while also enjoying tax savings today and a large cash flow for several years.  

By transferring assets like cash, bonds, mutual funds, securities, or real estate to a trust, you earn the net income while the trust is active and the remaining investment money is donated to Save the Children, when the trust ends.  

How does a Charitable Remainder Trust work? 

  1. Once you have set up your trust and transferred the asset(s), the trust is held and managed by an appointed trustee (often an institutional or professional trustee).
  2. The trustee then invests and manages the funds based on your agreed preferences.  
  3. An agreement is then signed between you and Save the Children. Once the transfer to the trust is made, Save the Children will issue you a charitable tax receipt for the fair market value of the remaining interest.  
  4. The remaining interest is calculated by a Canada Revenue Agency formula, taking into account life expectancy and the present value of the assets being transferred into the trust.
  5. The net income earned by the trust funds are paid to you, or a person of your choosing. The income generated can also be donated back to Save the Children for additional tax benefits depending on your financial needs and goals.  
  6. When the trust ends—usually at the death of a specified person or after a certain number of years—the remainder of the investment is automatically donated to the Save the Children.  

How does a Charitable Remainder Trust benefit you? 

  • You receive a charitable donation receipt in the year you set up the trust. This receipt will help reduce the tax you pay in that year and can be spread over five years. 
  • The trust will provide you with income as long as you choose under the trust agreement. 
  • Assets held in a CRT are no longer part of your estate, which means that upon your passing, it is not subject to probate fees and other estate costs. 

Is a Charitable Remainder Trust right for you?  

CRTs are permanent and legally binding, so it’s important to consult your legal and financial advisors for advice on your unique financial goals and needs. There are several important factors to weigh in your decision.  

  • CRTs work best for donors who are at least 70 years old. This is because the value used for your tax receipt will be higher in this age bracket. 
  • Assets within a CRT should be worth at least $150,000 to offset fees, and the fees are tax-deductible. 
  • Because you can’t take out funds from the original amount used to set up the trust, it’s important to consider what other sources of income you can rely on in the event the income from the CRT is no longer enough. 

Bottom line: investing in a Charitable Remainder Trust in partnership with Save the Children, can help you achieve your financial goals, and you will leave a legacy by changing the lives of children in crisis here in Canada and around the world. 

For more information on how you can build your legacy by investing in a Charitable Remainder Trust, email Kathryn Lara  at leavealegacy@savethechildren.ca or call us at 1-800-668-5036 ext. 265. Learn more about different ways you can give at Save the Children. 

Note: This information is not intended as legal or financial advice. If you are considering a Charitable Remainder Trust, please speak with independent financial and legal advisors about your wishes to ensure that they reflect your financial circumstances and giving goals.

By Kathryn Lara