Family obligations and the need to provide
for retirement, coupled with the high cost of living, make it difficult
for many people to consider making substantial charitable gifts now.
Charitable trusts offer the satisfaction of making a meaningful gift
without sacrificing your standard of living. Charitable trusts,
established during your lifetime or through your will, allow you to
support the Center while obtaining tax and income advantages for you
and your beneficiaries.
Charitable Remainder Trust
Charitable Remainder Unitrust
Charitable Remainder Annuity Trust
Charitable Lead Trust
Charitable
Remainder Trust
When you create a charitable remainder trust, you irrevocably transfer
assets to a trust that will then pay you an income for life or for a
fixed term of years. The trust also can pay income to another
beneficiary of your choice for life or a term of years. At the end of
that period of time, the remaining trust balance comes to the Center.
You may fund a charitable remainder trust with cash or appreciated
securities, and such trusts are the preferred way to donate real
estate.
You receive a charitable deduction in the
year you create the trust, and assets in the trust are not taxed as
part of your estate. There are two basic types of charitable remainder
trusts: the unitrust and the annuity trust.
Charitable
Remainder Unitrust
The charitable remainder unitrust pays you a fixed percentage of the
fair market value of the trust assets, as revalued each year. You
select the rate of income return at the beginning of the trust: it must
be at least 5 percent and is usually not more than 7 percent. The best
rate for you depends on the number of beneficiaries you select and
their ages.
You may claim a charitable deduction on
your income tax form in the year that you create the trust. The size of
the deduction is equal to the present value of the remainder interest
that will ultimately come to the Center, based on IRS life expectancy
tables.
The income payments you receive are taxed
as ordinary income, or in some cases as capital gains or tax-free
return of principal. Unitrusts can provide an excellent hedge against
inflation if the trust principal increases.
Example: Sam, 55, and Lee, 50, believe in
our mission and wish to make a substantial charitable gift to support
the Center. When they updated their estate plan, they decided to create
a charitable remainder unitrust to reduce their taxes and support our
work. The couple owns securities that originally cost $50,000 and that
are now worth $100,000. They donate these securities to a charitable
remainder unitrust. They receive an immediate income tax deduction of
approximately $10,244 and they avoid paying the capital gains tax on
the appreciated securities.
Sam and Lee choose to receive lifetime
annual payments of 5 percent of the value of the trust. The first year,
they receive $5,000. The trust assets are revalued annually and the
payments may grow if the trust principal appreciates over time. After
their lifetimes, the Center will use the trust principal to support top
scholars and research.
Charitable
Remainder Annuity Trust
A charitable remainder annuity trust is a good option for those who
prefer fixed income. The charitable remainder annuity trust pays you a
fixed dollar amount annually for life. The fixed payments are
determined by the payout percentage selected at the beginning of the
trust. You can claim a charitable deduction on your income tax form in
the year in which you create the trust. The income payments you receive
are taxed as ordinary income, or in some cases as capital gains or
tax-free return of principal.
Example: Ann, aged 75, owns several stocks
with a combined market value of $100,000. These stocks pay dividends of
only $2,000 per year, or 2 percent of the market value. Ann decides to
transfer these securities to a charitable remainder annuity trust with
a 7 percent ($7,000) payout per year. This payout remains constant for
the rest of Ann’s life.
If Ann sold her stocks instead, she would
pay capital gains tax on the appreciation. If the cost basis of her
stocks is $30,000, she has a gain of $70,000. At a federal capital
gains tax rate of 15 percent, the tax would be $10,500. This would
leave Ann with only $89,000 to reinvest, so she would have to find
stocks that pay a dividend of more than 8 percent to receive the same
$7,000 her trust can pay her. In addition, Ann can take a substantial
charitable income tax deduction in the year she creates the trust.
People with very large estates can use a charitable lead trust to
benefit the Center and pass principal to family members with little or
no tax penalty. With this arrangement, you transfer assets to a trust
during your lifetime or through your will. The income from the trust
flows to the Center for a stated number of years. At the end of that
time, the trust principal goes to your children, grandchildren, or
others free of—or at greatly reduced—federal gift and estate tax. In
some cases, generation-skipping tax is imposed on large transfers to
grandchildren and others who are more than one generation younger than
you.
We hope that you will tell us when you
have created a charitable trust to benefit the Center. We would like
the opportunity to thank you for your generosity. If you prefer to
remain anonymous, your gift will be kept completely confidential. But
recognition of your gift can encourage others to follow your lead. We
will honor your wishes either way. For more information, or for
assistance in arranging your gift, please contact us.
