Charitable Remainder Trust

Why do people decide to make charitable gifts?

• They have compassion for those in need of assistance.
• There is a religious and spiritual commitment.
• They want to help organizations that continue their beliefs, values and ideals.
• They desire to support the Arts, Sciences and Education.
• A desire to share one's good fortune.
• The tax laws of our country are designed to encourage charitable gifts.

What are the different types of Charitable Gifts?

A Charitable gift may be outright gifts of cash or other valuable assets to favorite charitable organizations. Individuals often decide to wait until they die to transfer assets to a charitable organization through a will or a trust. Special methods of gifting which allow a donor to make a gift in the present, while still retaining an income stream from the gift for life, (Charitable Remainder annuity Trust and Charitable Remainder Unitrust).

What are some financial benefits of Charitable Gifts?

• The gift can provide an income tax deduction.
• It may increase personal, after-tax cash flow.
• In many instances the gift can avoid or delay payment of capital gains taxes.
• The gift may increase the amount of estate that passes to one's heirs.

What are the Benefits of a Charitable Remainder Trust?

• Convert appreciated assets into lifetime income.
• Reduces current income tax with the charitable tax deduction.
• Pay no capital gains tax when appreciated assets are sold.
• Reduce or eliminate federal estate tax.
• Benefit your own favorite charities, church or university.
• Receive a larger amount of income over the lifetime than if you had sold the assets yourself.

What does a Charitable Remainder Trust Do?

The Charitable Remainder Trust allows the creator to convert appreciated assets (Stocks, Real Estate and etc.) into a lifetime income. It reduces your income taxes now and estate taxes when you die and you pay no capital gains tax when the asset is sold. It lets you name a Charity or School that has special meaning to your or your family.

How does a Charitable Remainder Trust Work?

The creators of the trust transfer appreciated assets into an irrevocable trust. This removes the assets from the estate. The trustee of the Charitable Remainder Trust then sells the assets at full market value, paying no capital gains tax and reinvests the proceeds in income-producing assets. For the rest of the trustor's life, the trust pays an income to the trustors. Upon the death of the trustors, the remaining trust assets are distributed to the charity or organization named in the trust. Thus the name is Charitable Remainder Trust.

Why not sell the assets and re-invest the proceeds yourself?

By selling the assets yourself you would have to pay more in taxes and there would be less income from the assets. There would be no Charitable Tax Deduction available and Capital Gains Tax would have to be paid on the appreciated assets.

What are the Income Choices in a Charitable Remainder Trust?

The trustors can receive a fixed percentage of the trust assets. With this option the amount of your annual income will fluctuate, depending on investment performances and the annual value of the trust. This would be called a Charitable Remainder Unitrust.

Other options would be to elect to receive a fixed income. This means that regardless of the trust's performance the income will not change. This would be called a Charitable Remainder Annuity Trust. In either a Charitable Remainder Unitrust or Annuity Trust the Internal Revenue Service requires that the payout rate stated in trust cannot be less than 5% or more than 50% of the initial fair market value of the trust assets.

Who can receive Income from the Charitable Remainder Trust?

Trust income can be paid to the trustors for their lifetime. The income can be paid to children for their lifetime or to any person or entity providing the trust meets certain requirements. Instead of providing income for a lifetime, the trust can be designed to provide income for a set number of years.

Do I have to take income when I create the trust?

No! The trust can be set-up, and the income tax deduction taken without starting the withdrawal of income. The withdrawal of income can be postponed until a later time. With good management, the trust assets will have appreciated in value, resulting in a larger income being available at the time the trustors wants to start taking income.

Do I still have control?

As long as the trustor is alive, the trustee selected controls the assets of the trust. Not the Charity. The named trustee must follow the instructions put into the trust document by the Trustor. The trustor can retain the right to change a trustee if they become dissatisfied. The trustor can change the Charity to another Qualified Charity without losing the tax advantage.