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Can You Change the Beneficiaries of a Charitable Remainder Trust? Exploring Your Options

Can You Change the Beneficiaries of a Charitable Remainder Trust? Exploring Your Options

July 21, 2023

A lot can change as the years and decades pass. You might become more passionate about a particular charity, a beneficiary may no longer need your financial assistance, or you may want to stretch out the income that you will be providing to a beneficiary over their lifetime. 

All of these scenarios lead many people to wonder: can you change the beneficiaries of a charitable remainder trust

There are a lot of subtle nuances surrounding this topic because there are multiple beneficiaries on every CRT. For more information on how you can or cannot change the beneficiaries on your trust, here is what you need to know. 

Can You Change the Charitable Beneficiaries of a CRT? 

Many people find new causes to be passionate about as they move through life. Sometimes, these new passions can eclipse their old ones which leads us to an important question: can you change the charitable beneficiaries of your charitable remainder trust? 

The good news is that there is a way to alter where you make the ultimate donation. However, it may not be an easy or straightforward process. In most cases, you will need to file a trust amendment.

If you are unsure where you want to donate funds with the remainder of your CRT, a better idea might mean that you need to think about these changes when forming the trust. You can do this through actions like naming a donor-advised fund or naming multiple charities as beneficiaries of your future donation. 

Donor-advised funds allow you to contribute money to an account where it will be invested and grow without taxes. It can then be used to recommend grants to the charities of your choosing, either now or at some future point when the trust ends. In other words, you do not need to select a charity right away and will have more flexibility moving forward. 

 You could also name multiple charities as beneficiaries if you want to spread your wealth around. The only restriction here when naming a charitable beneficiary is that it must be a recognized non-profit according to Internal revenue Code 170(c) stipulations. 

Can You Change the Non-Charitable Beneficiaries of a CRT? 

One of the major benefits of a charitable remainder trust is the ability to create a financial legacy for your loved ones. The beneficiaries receiving income payout will benefit from this scenario, but can you change who is included in the payouts after the CRT is formed? 

Be careful in how you set up the CRT from the beginning. The non-charitable beneficiaries cannot be altered after the trust is established.

Can You Change How a Charitable Remainder Trust is Funded? 

Before you contribute funds, assets, or real estate to any type of charitable remainder trust, you need to be absolutely sure that you want to do so. There are many tax benefits that make this worthwhile, but you should commit to only contributing what you can afford to be without. 

All contributions made to a CRT are irrevocable. You will not be able to get back anything that has been donated to a charitable remainder trust, no matter how desperately you may need those assets in the future. Once they are gone, they are gone for good. Make sure that you can afford to part with those assets prior to making a contribution to a CRT. 

That being said, there are two major types of charitable remainder trusts that can be funded in slightly different ways: charitable remainder annuity trusts (CRATs) and charitable remainder unitrusts (CRUTs). 

CRATs allow you to fund your trust just one time. If there is anything you would like to contribute to a CRAT, you will need to do so on the front end. This means that you need to have all of your assets and cash freed up in order to make the biggest impact with your contribution at the very start of the trust. 

On the other hand, CRUTs can continue to be funded over the course of your lifetime. If you think that you may have more to contribute in the years that lay ahead, you may want to consider using a CRUT over a CRAT for this purpose. It gives you a greater degree of flexibility if your wealth grows in unexpected ways over the long-term. 

Can You Change the Payout Rate for Income Beneficiaries?

The payout rates are quite specific for charitable remainder trusts, with the IRS stipulating that it must be no less than 5 percent and no more than 50 percent of the fair market value of the trust. 

You can determine what the perfect number is within these guidelines, but be cautious with what you select. Once you set the payout rate for your income beneficiaries, it cannot be changed. 

Another thing you cannot change is the minimum donation to your charitable beneficiary. At the end of the trust term, you must donate at least 10 percent of the fund to the charity of your choice. While you can donate more if you want, the charitable remainder trust 10 percent rule requires that you donate at least 10 percent. 

Enlist the Help of Professionals

If you want to ensure that your charitable remainder trust is set up exactly how you want it, you need the help of experts who are experienced in this field. At Magellan Planning Group, we can help you work the proper language into your legal agreements to make it easier to account for future changes. While not all aspects of the trust can be altered, we can make it easier for you to have the flexibility you desire. 

Contact us today to learn more about how we can help you set up your CRT seamlessly.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.