8083 / What considerations impact a taxpayer’s choice as to which type of charitable remainder trust to form?

An individual’s choice as to which type of charitable remainder trust vehicle to use may depend in large part on the degree of flexibility needed. The majority of charitable trusts use the charitable remainder unitrust form, because it offers the greatest degree of flexibility with respect to future contributions, the timing and amount of the payment stream, and the degree to which the individual may have an effect on the administration of the trust. However, charitable remainder unitrusts are the most expensive to administer.

Certain other factors may affect the decision as to which trust form is preferable. A donor who prefers fixed payments over variable payments may prefer a charitable remainder annuity trust; the age of the donor may have a significant impact on this preference and on the degree of flexibility needed. If the property being contributed is illiquid, a trust with an inflexible payout arrangement would be ill-advised. A donor who wishes to avoid set-up and administration expenses may prefer to contribute to a pooled income fund (see Q 8087, Q 8097), or a charitable gift annuity.

The 10 percent remainder interest value requirement may prevent some formerly acceptable arrangements from being permissible if established after July 28, 1997, particularly in the case of a younger couple (e.g., under 45) utilizing a payout over two lives. See Q 8088, Q 8089.

One final factor that may affect the donor’s choice of CRT vehicles is the extent to which he wishes to maintain control over the administration of the trust assets. Provided the trust adheres to strict limitations, the grantor of a charitable remainder unitrust or annuity trust may be able to successfully act as a trustee; the contributor to a pooled income fund may not.¹ Traditionally, advisors recommended against a grantor’s acting as trustee of a charitable remainder trust, fearing that the grantor trust rules (see Q 797) might result in its disqualification. However, the IRS has ruled, as well as indicated in letter rulings, that a CRT that is otherwise properly designed and administered will not be disqualified merely because the grantor acts as a trustee.²

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Planning Point: The question still remains whether a new trustee understands all the duties of a trustee and can be reasonably expected to accurately perform the necessary functions of a trustee on a timely basis. The duties can be significant and in many cases a professional trustee is the prudent choice.

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