Legal Definitions - charitable remainder

A charitable remainder refers to a future interest in property where the ultimate recipient of the remaining assets is a qualified charity. This arrangement typically involves a donor transferring assets (such as money, stocks, or real estate) into a trust or similar legal vehicle. One or more non-charitable beneficiaries (often the donor or their family members) are then granted the right to receive income from, or use of, these assets for a specified period—either for their lifetime(s) or for a set number of years. Once this initial period ends, the "remainder" of the assets, meaning whatever is left, is then distributed to the designated charity.

This legal concept allows individuals to make a significant gift to a charity while potentially retaining an income stream or use of the property for themselves or others for a period, and often provides tax benefits to the donor.

• Example 1: Lifetime Income for a Spouse

  A wealthy individual establishes a charitable remainder trust, funding it with $2 million in marketable securities. The trust specifies that their spouse will receive annual income payments from the trust for the remainder of the spouse's life. Upon the spouse's death, the remaining principal of the trust is to be distributed to a local hospital foundation.

  Explanation: Here, the spouse is the non-charitable beneficiary who receives the initial interest (income for life). The "charitable remainder" is the principal that will eventually go to the hospital foundation after the spouse's death, fulfilling the donor's philanthropic intent.

• Example 2: Term of Years for Children's Education

  A couple places a rental property valued at $1 million into a charitable remainder trust. The trust document stipulates that their two children will receive the net rental income from the property for a period of 15 years, which coincides with their expected college and graduate school expenses. After the 15-year term concludes, the property itself (or the proceeds from its sale) will be transferred to a university's scholarship fund.

  Explanation: In this scenario, the children are the non-charitable beneficiaries receiving income for a fixed term. The "charitable remainder" is the rental property itself, which will ultimately benefit the university's scholarship fund once the 15-year period expires.

• Example 3: Retaining Use of a Home

  An elderly artist decides to donate their valuable studio and home to an arts conservancy organization. However, they want to continue living and working in the home for the rest of their life. They execute a deed that transfers ownership of the property to the conservancy but reserves a "life estate" for themselves. This means they retain the right to live in and use the property until their death, at which point full ownership automatically transfers to the conservancy.

  Explanation: The artist retains the initial interest (the right to live in the home for life). The "charitable remainder" is the full ownership of the studio and home that will pass to the arts conservancy organization after the artist's death, without the need for probate.