Charitable Remainder Annuity Trust Law and Legal Definition

Charitable Remainder Annuity Trust is a type of charitable remainder trust that provides a fixed payment of 5% or more of the fair market value of the original principal to one or more individual beneficiaries either during their lifetimes or for a specific term of years. Upon the death of the last living individual beneficiary or upon the expiration of the term of years, the balance of the trust assets must be distributed to one or more charitable organizations.

The following is an example of a Federal Statute defining Charitable Remainder Annuity Trust:

According to 26 USCS § 664 a charitable remainder annuity trust means “a trust—

A) from which a sum certain (which is not less than 5 percent nor more than 50 percent of the initial net fair market value of all property placed in trust) is to be paid, not less often than annually, to one or more persons (at least one of which is not an organization described in section 170(c) [26 USCS § 170(c)] and, in the case of individuals, only to an individual who is living at the time of the creation of the trust for a term of years (not in excess of 20 years) or for the life or lives of such individual or individuals,

B) from which no amount other than the payments described in subparagraph (A) and other than qualified gratuitous transfers described in subparagraph (C) may be paid to or for the use of any person other than an organization described in section 170(c) [26 USCS § 170(c)],,

C) following the termination of the payments described in subparagraph (A), the remainder interest in the trust is to be transferred to, or for the use of, an organization described in section 170(c) [26 USCS § 170(c)] or is to be retained by the trust for such a use or, to the extent the remainder interest is in qualified employer securities, all or part of such securities are to be transferred to an employee stock ownership plan in a qualified gratuitous transfer and

D) the value of such remainder interest is at least 10 percent of the initial net fair market value of all property placed in the trust."