Who Can Be a Trustee of a Charitable Remainder Trust?

Charitable remainder trusts are useful tools for estate planning. You have the potential to earn an income, reduce the amount of taxes you pay on your assets, and benefit a charitable cause simultaneously. When creating your trust, you may wonder who will administer your assets in the event of your death or once the trust terminates. This is the responsibility of the trustee.

Here’s what you need to know about appointing a trustee for your charitable remainder trust.

What Is a Charitable Remainder Trust?

A charitable remainder trust (CRT) enables you to set up an income stream for you and your beneficiaries and give the remainder to charity.

Like all other trusts, a charitable remainder trust is established by a trust agreement. It has a settlor who creates and funds the trust and a trustee who administers the trust. A CRT also has beneficiaries who receive money and the trust’s remaining assets when the trust terminates.

The main differences between a CRT and other trusts are: 

•       CRTs are tax-exempt.
•       The beneficiaries must include a non-charitable beneficiary.
•       The remainder beneficiaries have to be qualified charities.
•       The settlor must be entitled to claim an income tax deduction in the tax year the CRT is established. The income tax deduction must equal the value of the remainder interest when the CRT is funded.

The Difference Between a Trustee, a Grantor, and a Beneficiary 

To understand who can be appointed a trustee of a CRT, it’s important to know other key roles in a trust’s creation and administration. 

•       A grantor is an individual or entity who creates the trust and owns the assets within for income and estate tax purposes. The grantor is sometimes also called the settlor. 

•       A trustee is an individual or entity that holds and administers the property or assets of a third party; they are responsible for the assets contained in a trust. What the trustee does with the property in their care is usually outlined in the trust agreement. 

•       A beneficiary is the person or people who will benefit from the assets in the trust after they are distributed.

Who Can Act as the Trustee for a CRT?

Almost anyone can act as a trustee of a charitable remainder trust; in most cases, you can appoint yourself or a spouse as the trustee. Any of the beneficiaries, either charitable or non-charitable, may act as trustees. However, if either charitable or non-charitable beneficiaries are appointed, there are special rules regarding unmarketable assets. These assets must be valued by either an independent trustee or appraiser.

It is also vital that the grantor must not be given any special powers as a trustee, such as changing the beneficiaries of the trust or borrowing from the trust without proper security. If this happens, it could result in the CRT being disqualified and deemed a Grantor Trust (where the IRS deems the grantor the owner of the property and assets in the trust).

The IRS commonly sees those who are grantors and beneficiaries of the trust also named as the trustee. However, self-dealing rules and taxes under IRC 4941 apply to charitable remainder trusts.

When Should You Select an Independent Trustee?

While it’s possible to appoint yourself or a spouse as the trustee of your CRT, there are certain circumstances where it’s in your best interest to appoint an independent trustee instead.

An independent trustee is someone who does not benefit from the assets contained in the trust. When the trust’s beneficiaries are family members who are likely to disagree or a minor who cannot immediately manage the assets, an independent trustee can handle the administration of the trust in good faith.