This type of planned gift generates income meaning you can pursue your philanthropic goals while also helping provide for living expenses. The payout can be monthly, quarterly or annual. It has to be at least 5% of the value of the trust and cannot be more than 50%. The eventual payout to the charity must be at least 10% of the starting value of the trust.
Charitable remainder trusts have two primary types:
- Charitable remainder annuity trusts (CRATs) distribute a fixed annuity amount each year, and additional contributions are not allowed.
- Charitable remainder unitrusts (CRUTs) distribute a fixed percentage based on the balance of the trust assets (revalued annually), and additional contributions can be made.
Example: Wayne owns a seaside cottage that he and his family no longer use. He does not want to go through the process of selling the property himself and knows that he can use it to benefit Lund. He places the property in a 20 year charitable remainder trust. The trust sells the property and invests the proceeds on his behalf. This means he does not have to pay capital gains tax and the sale results in a $1,000,000 contribution to the trust. Wayne is also able to claim an immediate charitable income tax deduction equal to the present value of the projected remainder interest that will pass to Lund. Wayne takes an annual payout of $60,000. The trust earns 7% income each year. Over the 20 years, Wayne receives $1,200,000 in payouts from the trust (which are subject to income tax). Lund then receives the remaining funds in the trust amounting to $1,409,522.
A charitable remainder trust is an excellent planned giving option for a donor who desires annual cash flow, has highly appreciated assets, is interested in charitable giving, or is in a high tax bracket.
If you are interested in setting up a charitable remainder trust or if you have any questions, please contact Sharon Lifschutz, Director of Development at (802) 861-2580 or sharonl@lundvt.org
The purpose of this page is to provide general gift, estate, and financial planning information. It is not intended as legal, accounting, or other professional advice. For assistance in planning charitable gifts with tax and other financial implications, the services of appropriate advisors should be obtained. Consult an attorney for advice if your plans require revision of a will or other document.
