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Income Generating Gifts: Charitable Remainder Trust

This income-generating gift is created by transferring assets to a trust that pays you (and/or another beneficiary) income for life or up to 20 years. At the end of the trust, the remaining principal is transferred to the U.S. ENGLISH Foundation. This is a good vehicle if it is important to you to know exactly the dollars that you will receive every year. You will immediately qualify for an income tax charitable deduction, and have the possibility of partially tax-free income payments. The older you are, the greater your charitable deduction.

There is also a possibility of estate tax savings. You can also receive fixed payments for life, based on the amount chosen from the outset. The income can be paid to your, a spouse or other beneficiary. At the death of all income beneficiaries, the remainder of the trust goes to the charity of your choice. You can design the trust to suit your needs, deciding how much to put into the trust, and then the income that you would like to receive. The rate of return must be at least 5%. The rate you can elect to receive will depend upon the number of beneficiaries and their ages. Last, you decide whether you want the income amount or the income percentage to remain constant each year.

You cannot add to the trust later to increase your income, but you can create a new trust for that purpose. You can fund this type of trust with cash, appreciated securities, or other property.

• How does Charitable Remainder Annuity Trust work?
• Your financial benefit

How does Charitable Remainder Annuity Trust work?

You make a gift to the U.S.ENGLISH Foundation in assets such as cash, securities (or real estate, as permitted by state law.) In return, you (and/or another designated beneficiary) will receive income for life.

You can design the trust to suit your needs, deciding how much to put into the trust, and then the income that you would like to receive. The rate of return must be at least 5%. The rate you can elect to receive will depend upon the number of beneficiaries and their ages. Last, you decide whether you want the income amount or the income percentage to remain constant each year.

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Your financial benefit

Financial benefits of Charitable Remainder Trust:

• Income tax charitable deduction at the time you establish the trust. The deduction as determined by IRS tables of life expectancy factors depends on the age of the beneficiary, number of beneficiaries and the amount of the payment.
• Capital gains savings. If you fund your trust with appreciated securities, the trust can sell the assets without any tax and reinvest the proceeds.
• Reduction of taxable estate

Your yearly payments will depend on the type of the Remainder Trust you choose:

1. Annuity Trust

   Will pay you the same dollar amount based on the percentage you choose at the outset of the agreement for life. These fixed payments are determined on the outset evaluation. This arrangement allows for a charitable dedication on the year when you create the trust.

2. Unitrust

   With this arrangement, you receive each year a fixed percentage of the fair market value of the trust’s assets, as evaluated annually. If the value of the fund increases, so do your income, and your charitable gift. Like the annuity trust, you can claim a charitable deduction on your income tax form the year that you create the trust. The payments you receive are taxed as ordinary income, and in some cases as capital gain or tax-free return of principal.

A unitrust must distribute at least 5% of the annual market value of the assets in the trust (usually, the rate selected is 6-9%). You will immediately qualify for an income tax charitable deduction, and have the possibility of partially tax-free income payments.

There is also a possibility of estate tax savings. This type of trust is used as a hedge against inflation -- if predicted economic growth increases the worth of the trust's assets, a well-managed unitrust over time may offer better protection of your purchasing power than a fixed dollar payment. Additionally, you can contribute to this type of trust to enlarge it, so the cost of creating and administering more than one trust is not necessary. You can fund this type of trust with cash, appreciated securities, or other property. The older the donor, the greater the charitable deduction.

Disclaimer: U.S.ENGLISH Foundation does not render legal, tax or other professional advisory services. Advice from an attorney and other professional advisors should be sought when considering charitable giving.