Charitable Trusts allow you to receive an income for yourself or another beneficiary throughout your lifetime. By placing highly appreciated assets into a charitable trust, those assets can be sold free of capital gains taxes. You receive a percentage income based upon the value of the appreciated asset.
Advantages of Charitable Trusts
Income for life – Donors can reserve income for themselves or themselves plus one or more beneficiaries. The income can last for a lifetime or a specific number of years (up to 20). The donor selects the frequency of payments (quarterly, semi-annually, yearly) and the type of payments (annuity-like benefits that are fixed or benefits that fluctuate from year to year).
Charitable deductions – Donors receive an immediate income tax deduction for the value of the Foundation’s right to receive the gift principal in the future. Deductions frequently allow the donor to make a much larger gift than would otherwise be possible.
Capital gains tax avoidance – Donors who fund their gifts with appreciated property receive a deduction based on the full fair market value of the property. They avoid any capital gain taxes on their appreciated assets.
Gift Amounts and Limitations
GHF Board of Directors has established the following minimum amounts for charitable gifts and annuities. Annuity trusts, unitrusts, and gift annuities are not allowable below specific sizes.
|Charitable Gift Annuity||$5,000|
|Deferred Gift Annuity||$10,000|
|Charitable Remainder Annuity Trust||$100,000|
|Charitable Remainder Unitrust||$100,000|
|Charitable Lead Trust||$50,000|
As required by law, GHF may only accept life income gifts for one or two lives and also over a set term of years. The usual minimum age for acceptance of the donor/first life income beneficiary is sixty-five (65). The minimum age for a second annuitant is fifty-five (55). The exception to the above would be the deferred gift annuity.
Charitable Remainder Trusts
Charitable Remainder Trusts (CRTs) are income trusts created by transferring property irrevocably to a trustee under a trust agreement that provides the donor and/or designated beneficiary income for life. The minimum payout rate is fixed by law. After the deaths of the income beneficiaries, the remainder is paid to the charity. CRTs were created under the Tax Reform Act of 1969.
There are two primary types of charitable remainder trusts: Annuity Trusts and Unitrusts.
Charitable Remainder Annuity Trust: A CRAT provides a fixed payout that must equal a sum certain of not less than 5% of the initial fair market value of the gift in trust. Whatever remains in the trust becomes the property of the beneficiary (GHF) at the time of his or her death. Annuity trusts do not permit additional contributions.
Charitable Remainder Unitrust: A CRUT provides an income that is a fixed percentage of the net fair market value of the trust assets. The trust assets are re-valued annually. This percentage must be at least 5%. The income payments of a unitrust will vary from year to year as the trust’s value changes. The unitrust may be set up for the lives of the beneficiaries or for a term not to exceed 20 years. The governing instrument may include a provision to permit additional contributions.
The trust agreement shall provide that an appropriate independent fiscal agent, including a bank or financial institution, serve as trustee. The Foundation retains the right to change the trustee. Other provisions include:
- no trust shall be established for less than 5% payout or more than 10% payout;
- the recommended minimum funding for a Charitable Remainder Trust is $100,000;
- agreements are limited to two beneficiaries;
- cash, publicly traded stock, bonds, and appreciated properties may be used to establish charitable trusts.
Charitable Lead Trusts
The Charitable Lead Trust allows a donor to put funds into a trust that pays the charity the income for a specified period of time and then returns the principal of the trust to the donor or the donor’s estate. The donor receives an immediate charitable tax deduction for the value of the income that will be given to the charity.
A Charitable Lead Trust (annuity or unit) provides payments to a designated charity for a term of years of any duration, after which the assets in the trust either revert to the donor or pass to a non-charitable beneficiary designated by the donor. Charitable lead trusts enable an individual to benefit a charity and pass principal to family members with little or no tax penalty. The recommended minimum funding for a Charitable Lead Trust is $50,000.