Charitable Remainder Trusts

With a charitable remainder trust, you can receive income each year for the rest of your life from assets you give to the trust you create. Your income can be either variable or a fixed amount. After your lifetime, the balance in the trust goes to the charities of your choice. In the right circumstances, this plan can increase your income, reduce your taxes, unlock appreciated investments, rid you of investment worries, and ultimately provide very important support both to the Anne Carlsen Center and you and your family.

You can choose between two types of charitable remainder trusts: annuity trusts and unitrusts

The annuity trust pays you, each year, the same dollar amount you choose at the start. Your payments stay the same, regardless of fluctuations in trust investments.

The unitrust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets. The amount of your payments is redetermined annually. If the value of the trust increases, so do your payments. However, If the value decreases so will your payments.

Say you want to give through a charitable remainder trust, but you don’t need your payments from your charitable remainder trust to begin immediately. Try considering one of these three additional types of unitrusts and their benefits.

1. One of the most common types of unitrusts is called a net income with makeup unitrust (NIMCRUT). It offers great flexibility in retirement planning because income can effectively be deferred until later years. The trust pays the lesser of the fixed percentage specified by the trust agreement or the actual trust income. Such trusts provide, however, that in any year the trust income exceeds the fixed percentage payout, the excess must be used to make up any prior deficiencies.
2. The second version is called a net income unitrust (NICRUT) uses the same payout structure but without a makeup provision.
3. The third common type of unitrust is the flip trust. It begins as a NIMCRUT or NICRUT and then “flips,” or changes, to a regular payment unitrust during the term of the trust. The triggering events to enact the flip can be marriage, divorce, death, birth of a child, or the sale of unmarketable assets such as real estate or closely held stock. Real estate is commonly used to fund this type of trust, with payments delayed until after the real estate is sold.

Profile of a Giver of this Gift

For Annuity Trusts

• You are looking for more future income.
• You want a fixed income you can count on.
• You own low-yield assets that are worth more now than when you first purchased them.
• You want a higher current income without incurring up-front long-term capital gains taxes.

For Unitrusts

• You are looking for more future income.
• You want payments that hopefully keep up with inflation, and you don’t mind if the payments vary from year to year.
• You own low-yield assets that are worth more now than when you first purchased them.
• You want a higher current income without incurring up-front long-term capital gains taxes.
• You like the idea that additional assets can be added to the trust during your lifetime.

Benefits of this Gift

• A partial charitable income tax deduction
• Potential for increased income
• Up-front capital gains tax avoidance
• Professional management of trust assets available

Other Key Information

Choose Your Trustee: A trustee oversees the assets you place in a trust and administers the trust for the beneficiaries. You may decide to serve as your own trustee or name a professional advisor as your trustee. You can also choose a professional trustee, such as a bank or trust company. Many people name a professional as a co-trustee along with a family member. You will want to decide which traits are important to you.
Your trustee will:

• Make trust payments to you
• Invest the assets prudently
• Complete the necessary tax returns
• Notify you how much of your payments are taxable.

How to fund your trust:

A charitable remainder trust can be funded with a variety of assets all in which are up to you. While some assets are easier to give to your charitable trust, you’ll want to consider other important issues such as asset availability and capital gains tax savings. Here’s a breakdown of three popular possibilities and their effects.

1. Cash. Writing a check is the least complicated way to fund the trust. The trustee can then invest the cash in a diversified portfolio of securities.
2. Stock. Stock that is currently worth more than you paid for it and that you’ve owned for more than one year is an ideal funding choice. This stock is an especially attractive choice if it now produces only a modest income. Contributing low-yield stock can immediately boost your cash flow by means of a higher payout from the trust. You escape up-front tax on the stock’s capital gain and receive a substantial income tax charitable deduction. Plus, these assets are easily transferred to the trust.
3. Real estate. You can contribute any type of appreciated real estate you’ve owned for more than one year, provided it’s unmortgaged, and realize benefits similar to those for a stock gift. The donated property may be a residence (a personal residence must be vacant upon contribution), undeveloped land, a farm or commercial property. Real estate works well with only certain variations of charitable remainder trusts (i.e., a flip unitrust). Your estate planning attorney who will draft your trust can give you more details.

How to Make this Gift

After you have decided who should serve as your truste and how you would like to fund your trust, work with your attorney to follow these five steps to create a charitable trust that fits your financial needs.

1. Decide which assets you’d like to put into the trust. Donating appreciated, low-yield stock or real estate you’ve owned longer than one year is typically more advantageous than giving cash. You may boost your cash flow by means of a higher payout from the trust. And you’ll escape up-front tax on the asset’s capital gain.
2. Determine who you want to receive the payments and how much. The rate you select must be at least 5 percent. Usually, the rate selected is 5 percent to 7 percent. Also consider whether you want someone else to receive payments, too.
3. Consider how long you’d like the payments to last. Would you like to receive payments for your lifetime (or the lifetime of another beneficiary)? Or for a fixed number of years up to a maxium of 20?
4. Decide which type of charitable remainder trust will work best for you. You can choose to receive payments that vary from year to year (unitrust) or steady payments (annuity trust). Choosing a unitrust allows you to make gifts of additional assets into your unitrust at any time in the future.
5. Decide which charities you’d like to receive the balance of the trust after your lifetime (or the fixed term). Please let us know if you include the Anne Carlsen Center in your trust so we can thank you for your generosity, support of our mission and encouage you to tour our Jamestown Campus to see the impact you’ll be making on the individuals we serve.

For More Information

We understand these gifts are complicated, that’s why we would be happy to work with you and your advisors to discuss a potential gift that meets your financial goals while also supporting our mission. You are not alone in making these life-impacting decisions. Please contact the Anne Carlsen Center Foundation at 1-800-568-5175 to help you answer any questions you may have or to futher discuss your giving options.

For Additional Resource Information Click Here

The information on this website is not intended as legal or tax advice. For legal or tax advice, please consult an attorney. References to estate and income taxes apply to federal taxes only. State income/estate taxes or state law may impact your results.