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Trusts are very flexible planning tools that can be used to accomplish a wide
range of goals. Some people rely on them to reduce property management
chores. Others use trusts to delay distribution of property to heirs on
account of their age of other reasons.
 Trusts also allow a person to arrange for their property
to first be put to one use, then to another. A charitable remainder
trust offers a way to arrange a meaningful gift to public
broadcasting while first providing income for yourself and/or others
you name.
Here’s how such a trust functions:
- You, as the donor, create a trust, drafted by an appropriate professional
advisor.
- Cash or other property is transferred to the trust to be managed by you
or another person or an entity you choose as trustee. The trustee manages the property
for you, your spouse, and/or other beneficiaries you choose.
- Each
year, payments are made from the trust to you and/or other
beneficiary(ies).
- You
receive an income tax charitable deduction and may enjoy capital gains tax
savings in the year you create the trust.
- Payments
continue until the trust ends. The trust document specifies the time
when this is to occur, such as at the death of the last beneficiary
or after a stated period of time.
- When
the trust terminates, its assets become a gift to fund public
broadcasting programs. The gift portion is known as the charitable
remainder. If you wish, it can be used to create a memorial honoring
whomever you choose.
A Gift With an Income That Never Changes
A charitable remainder annuity trust is a way to make a gift
while receiving a fixed, regular income. Income from such a trust can
be a reliable supplement to other income in retirement years. Through the use of
this planning tool, professional management of assets can also be achieved for
you and/or surviving loved ones. The payments received each year must be
at least 5% of the amount originally placed in the trust. You determine
the exact
amount when your trust is created.
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For example: Marie, 72, decides to place $250,000 in a
charitable remainder annuity trust. She funds the trust with stocks that cost
$100,000 and are yielding 1%, or $2,500, per year in income.
Marie provides that her trust will pay her 5% of $250,000, or
$12,500, each year regardless of the actual earnings of the trust.
She is pleased to be able to substantially increase her
income while making a significant charitable gift.
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| Here are the results she achieves: |
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| Annual
income for the rest of her life (5% of $250,000) |
| ... $12,500 |
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| Capital gains tax when the trust is
created |
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... $0
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(A portion of her annual payments will probably be considered capital
gain or dividends and will be taxed at lower rates.) |
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Immediate income tax charitable deduction*
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... $133,380
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(Her deduction may be carried forward for as many as five
future years if amount is more than can be deducted in the year
of her gift.) |
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*depends on IRS discount rate
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A Gift With a Fluctuating Income
 Like the annuity trust, the
charitable remainder
unitrust provides for a gift while a donor retains income. But unlike
the annuity trust, the income from a unitrust fluctuates with the value
of the assets placed in the trust.
You determine the annual payout percentage when the gift
is made. Each year this percentage (at least 5%) of the value of the
trust assets is paid to you or others you name. When the value of the
investments goes higher, more income is received. The income will be
less if the value of the assets declines. Additions can be made to this
trust, and a tax deduction is allowed for part of each amount
contributed.
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For example: If Marie had
instead chosen a unitrust paying 5%, the first year she receives
$12,500. Next year, if the assets are worth $275,000, her income
rises to $13,750 (5% of $275,000). If the value of the assets is
less next year, her income will be reduced by a corresponding
percentage.
She is entitled to a deduction equal to over half of the amount with
which she funds the trust. She also avoids capital gains tax at
the time the trust is created. The charitable remainder unitrust
can be an excellent way to provide for an income today with the
possibility of future growth for those who believe that
investment assets will grow in value in future years.
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Other life income plans may be available to you. Please click on the
contact us link to the left to request more information.
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