Charitable Remainder Trusts

Leave a lasting legacy

The Internal Revenue Code defines a special class of charitable gift vehicles, known as “Charitable Remainder Trusts.” This class of trusts includes (1) Unitrusts, (2) Pooled Income Funds, and (3) Annuity Trusts, all of which are described more fully below. In addition, there is another form of deferred charitable gift which is fairly common, known as (4) Charitable Gift Annuities. The benefits and features common to all of these kinds of trusts and deferred gifts are:

  • A donor makes a contribution of valuable assets (the corpus).
  • If the donated assets are illiquid and/or non-income-producing, the trustee can sell them and reinvest the proceeds into liquid income-producing assets.
  • If the donated assets are highly appreciated in value, the capital gain realized upon the sale by the trust will normally be exempt from income tax.
  • As “Income beneficiary,” the donor retains the right to receive income
  • from the asset for a specified period or until death. These periodic distributions to the income beneficiary are usually taxable. The spouse or others may also be named as income beneficiaries.
  • The donor designates a “Charitable Remainder Beneficiary” (such as a Church) which will receive all of the remaining corpus and any accumulated income when the donor’s income benefit terminates.
  • The donor qualifies for a charitable contribution income tax deduction measured by the actuarially determined present value of the charitable remainder.
  • The trust itself, or the issuer of the charitable gift annuity, is an exempt entity. Therefore, retained income and capital gains accumulate tax-free.
  • Liquid assets of these trusts or annuities are usually invested in units of the common trust funds. The weighting between the various funds is determined by the income requirements of the participating trust or annuity.

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