A Charitable Remainder Trust is an irrevocable trust that is established for the life of the donor (also trustor or grantor) and/or for the life of any beneficiary(-ies), or for a specified period of time not to exceed twenty years.

Because the income is paid to one or more parties and, at the end of the trust's life, the principal and any undistributed interest is paid to a charity, a charitable remainder trust is called a split interest trust. The income portion of the trust may be either an annuity income or a unitrust income.

With an annuity trust, the beneficiaries' annuity income is calculated at the time the trust is established in the trust agreement. It is a fixed amount of dollars based on the then-market value of the trust. If the assets of the trust go up in value, the income portion does not change.

With a unitrust, the assets of the trust are revalued annually and the percentage rate established in the trust agreement determines the dollar amount of the unitrust interest. If the value of the principal in the unitrust declines, the value of the interest portion of the unitrust declines as well. The unitrust interest value increases if the value of the trust assets increases.

A charitable remainder trust is an attractive planning tool for the disposal of highly appreciated assets. While the assets revert to the charity rather than the heirs of the estate, the use of an irrevocable life insurance trust in conjunction with a charitable remainder trust could replace the asset's value for the heirs.

Net Income Charitable Remainder Trust
This variation of a unitrust provides that either the specified fixed percentage of the trust assets or the net income of the trust is distributed to the beneficiary, whichever is less. This type of trust is often used to handle real estate as there is no fixed distribution requirement, giving the trustee time to arrange an orderly sale of the property. A net income charitable remainder unitrust can be an excellent way to donate appreciated property and turn it into an income stream as well as acquire tax benefits.

A donor may also add a "makeup provision" to the trust. This allows a trust to distribute more than the fixed percentage of the assets in years where the trust's income exceeded the fixed percentage. In this manner, previous years' shortages, when the trust was not able to earn the fixed percentage payment, may be made up.