Charitable Remainder Trust

What is a Charitable Remainder Trust?

A Charitable Remainder Trust (CRT) is a gift plan defined by federal tax law that allows you to retain an income for yourself, your spouse, and/or others, while making a generous gift to a worthy non-profit institution like Sandhills Community College. The income can be structured to continue for the combined lifetimes of the named beneficiaries, a fixed term not exceeding 20 years, or a combination of the two. As a charitable remainder trust donor, you irrevocably transfer assets, usually cash or securities, to a trustee of your choice (for example, a bank trust company).

There are basically two types of CRTs – the Charitable Remainder Annuity Trust (CRAT) and the Charitable Remainder Unitrust (CRUT). Both provide a significant opportunity to support Sandhills Community College.

 

The Charitable Remainder Annuity Trust

During the Annuity Trust’s term, the trustee invests the trust’s assets and each year distributes a fixed dollar amount to the income beneficiaries. The payments must be at least 5% of the trust’s initial value and are made out of trust income, or trust principal if income is not adequate. The annual payout from the trust will remain constant throughout the term of the trust.

Payments continue until the trust term ends or the highly unlikely event that the trust distributes all its assets. Payments may be made annually, semiannually, or quarterly. When the annuity trust term ends, the trust’s principal passes to Sandhills Community College, to be used for the purpose you designate.

Consider this example of how a Charitable Remainder Annuity Trust could benefit you and your loved ones.

A married couple, aged 72 and 70, irrevocably transfers $250,000 in property with a cost basis of $50,000 to a CRAT that pays 6% of its initial value each year to them for their combined lifetimes.

The 6% charitable remainder annuity trust will qualify for a federal income tax deduction of approximately $77,483 (assuming an applicable federal rate of 4.8%). The actual deduction amount will vary modestly depending on the timing of the gift and is dependent upon the applicable federal rate, the ages of the income beneficiaries and the payout rate of the annuity trust.

The 6% charitable remainder annuity trust will provide the income beneficiaries fixed payments in quarterly installments totaling $15,000 each year for life.

 

The Charitable Remainder Uni-Trust

As with the annuity trust, the trustee invests the unitrust’s assets during the term of the trust. However, each year, the trustee distributes a fixed percentage of the unitrust’s current value, as revalued annually, to your income beneficiaries.

If the unitrust’s value goes up from one year to the next, its payout increases proportionately. Likewise, if the unitrust’s value goes down, the amount it distributes also goes down.

Payments must be at least 5% of the trust’s annual value and are made out of trust income, or trust principal if income is not adequate. Payments may be made annually, semiannually, or quarterly. When the unitrust term ends, the unitrust’s principal passes to Sandhills Community College, to be used for the purpose you designate. You may add funds to your unitrust whenever you like”a feature unique to the unitrust.

Consider this example of how a standard Charitable Remainder Unitrust could benefit you and your loved ones.

A married couple, aged 72 and 70, irrevocably transfers $250,000 in property with a cost basis of $50,000 to a CRUT that pays 6% of its value each year to them for their combined lifetimes.

The 6% charitable remainder unitrust will qualify for a federal income tax deduction of approximately $93,420 (assuming an applicable federal interest rate of 4.8%). The deduction will vary modestly depending on the timing of the gift and is dependent upon the prevailing applicable federal rate, the ages of the income beneficiaries and the payout rate of the unitrust.

The 6% charitable remainder unitrust will provide income beneficiaries payments in quarterly installments for life. In the first year, payments will total approximately $15,000. Payments in future years will vary with the value of the unitrust.

 

Protection from Capital Gains Taxes

Both types of charitable remainder trusts can provide protection from capital gains taxes. Because a CRT does not pay tax, it can sell appreciated property and reinvest the entire sales proceeds, free of capital gains tax. A charitable remainder trust may also save your estate probate costs and estate taxes.

 

Charitable Gift Planning and Sandhills Community College

Charitable gift planning, when done in concert with estate planning, provides an opportunity for friends of Sandhills to provide significant support for the college. The Charitable Remainder Trust is an astute way for you to retain a lifetime income while directing the ultimate use of your gift to benefit Sandhills Community College.