How are income payments from a Charitable Remainder Trust structured and taxed to the income beneficiary?

The taxation of distributions from a Charitable Remainder Trust to the income beneficiary is based on a four-tier structure. Income is classified in a specific order of priority: The first tier is ordinary income produced by the assets inside the trust. The ordinary income could be stock dividends, rental income, interest from CDs, or other ordinary taxable income from investments. The second tier comprises any capital gains realized by the sale of assets inside of the trust. The capital gain tier is calculated as the difference between the selling price of the asset and the trust maker's cost basis in that asset. Any portion of this tier which is distributed is taxed as capital gains to the trust maker. The third tier is any tax-free income produced by assets inside the trust. This is primarily municipal bond income or income from any other tax-exempt securities. Any portion of this tier which is distributed is not taxable to the maker. The fourth tier is the corpus of the trust. The corpus includes the cost basis of all contributed assets. Any portion of this tier which is distributed is not taxable to the maker.