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© 2013 VSA, LP Valid only if used prior to January 1, 2014. The
information, general principles and conclusions presented in this
report are subject to local, state and federal laws and
regulations, court cases and any revisions of same. While every
care has been taken in the preparation of this report, neither
VSA, L.P. nor The National Underwriter is engaged in providing
legal, accounting, financial or other professional services. This
report should not be used as a substitute for the professional
advice of an attorney, accountant, or other qualified
professional.
Giving Today to Guarantee Tomorrow
A Charitable Trust
Review
1c2-01
Why Consider a Charitable Gift?
2Giving Today to Guarantee Tomorrow: A Charitable Trust Review
People give to charities for a variety of reasons. They give:
According to the Giving USA
Foundation, individual giving
accounted for 73% of all
contributions to charitable
organizations in 2011.*
?
Because they have compassion for the less
fortunate.
From a belief that they owe something back
to society.
To support a favored institution or cause.
For the recognition attained by making
substantial charitable donations.
To benefit from the financial incentives our
tax system provides for charitable gifts.
1
2
3
4
5
* Source: Giving USA FoundationTM - Giving USA 2012 Executive Summary
Regardless of your reasons for
giving, a careful review of the
various ways to structure charitable
gifts can help make your gifts more
meaningful, both to you and to the
charities you choose to support.
How Can Charitable Gifts Be Structured?
3Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Outright Gifts
Today
Some people prefer to make outright gifts of cash or other assets to their charities of
choice. In many situations, an immediate charitable contribution makes sense… the
charity receives the cash or property at once, the donor receives immediate tax
benefits and the transaction is complete.
Retirement
Plan Gifts
A charity can be named as beneficiary of the funds in an IRA or employer-sponsored
retirement plan, which provides a double tax benefit…the charitable gift will be
deductible for estate tax purposes and the charity will owe no income tax on the funds
it receives.
Outright Gifts
at Death
Other people wish to make sizeable charitable contributions, but are hesitant to do so
during their lifetime. They may depend on the income produced by their assets, want
a family member to receive some benefit from the property, or simply be concerned
about what the future will bring in terms of their financial needs. As a result, they
decide to wait and make charitable gifts at their death, through a will or trust.
Split-Interest
Gifts
If you want to make a charitable gift, especially a substantial one, there are charitable
giving techniques available that allow you to make the gift today, while retaining an
interest in the property and receiving both immediate and longer-term tax benefits.
There is, however, another alternative…
Tax Benefits of Charitable Giving
4Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Federal Income Tax Deduction
Type of Asset Deduction Based on: AGI Limit
Public Charity Private Charity
1. Cash Amount Given 50% 30%
2. Ordinary Income and Short-Term
Capital Gains Property
Donor's Cost Basis 50% 30%
3. Long-Term Capital Gains Property
(general treatment)
Fair Market Value 30% 20%
4. Tangible Personal Property:
-Use related to charity's function
-Use unrelated to charity's function
Fair Market Value
Donor's Cost Basis
30%
30%
20%
20%
Gifts to qualified charitable organizations are deductible up to a
maximum of 50% of the donor's adjusted gross income (AGI), depending on the charitable organization
and type of asset given. If the value of the property given exceeds the donor's AGI limit, the excess can
be carried over and deducted for up to five years. The donor must itemize (a portion of itemized
deductions are phased out for taxpayers with AGIs above certain limits).
While generally not the primary motivation behind charitable giving, it is important to understand how
the tax savings generated by charitable gifts can fit into your overall financial and estate planning.
continued on next slide
Tax Benefits of Charitable Giving
5Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Federal Gift Tax
Irrevocable gifts to charity are not subject to federal gift taxation.
Federal Estate Tax Deduction
A federal estate tax deduction is allowed for charitable gifts made at death, whether through a will, a
trust or from a life insurance policy. There is no limit on the federal estate tax charitable deduction.
Split-Interest Charitable Giving Techniques
6Giving Today to Guarantee Tomorrow: A Charitable Trust Review
With a split-interest charitable gift, the asset is split into two parts:
Income Interest:
Through the use of a charitable trust, the donor transfers the asset(s) to the trust and names a
beneficiary for either the income interest or the remainder interest, with the charity receiving the other
interest.
Assuming the charitable trust is properly designed, a person making a split-interest gift may also realize
some or all of these tax benefits:
1
2
The stream of income produced by the asset.
Remainder Interest: The principal remaining after the income interest is paid.
A current federal income tax deduction;
Avoidance or delay of capital gains taxation;
and/or
A reduction of the federal estate tax bill.
Depending on your personal and charitable
giving objectives, there are several different
types of charitable trusts from which to
select.
Types of Charitable Trusts
7Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Charitable
Remainder Trusts
A beneficiary named by the donor receives the income interest for life or for a
stated number of years, after which the remainder interest is donated to the
charity.
Charitable Lead
(or Income) Trusts
The opposite… the charity receives the income interest for a stated period of
time, with the remainder interest then going to a beneficiary named by the
donor.
There are two types of charitable trusts,
each of which treats the income interest
and remainder interest differently:
While each type of charitable trust satisfies different objectives, they share certain common features:
During Life In order to realize maximum tax benefits, most people create charitable trusts during
their lifetime, especially during their highest income-producing years.
Tax-Exempt
Charities
The gift must be made to a tax-exempt charity approved by the IRS in order to provide
the desired tax benefits.
Irrevocable Once a charitable trust is created and becomes operational, it is irrevocable… you
cannot regain ownership of property given to the trust.
Income Tax
Deduction
A split-interest gift to a charitable trust results in a current income tax deduction,
assuming the taxpayer itemizes.
The Charitable Remainder Trust
8Giving Today to Guarantee Tomorrow: A Charitable Trust Review
A charitable remainder trust may be the solution for someone who wants to donate property to a
charity during lifetime and receive an immediate income tax deduction, while reserving an income
from the property for themselves, their spouses or even for other family members.
Using a charitable remainder trust, the donor receives an immediate charitable income tax
deduction based on the present value of the charity's remainder interest. The income beneficiary
(donor, spouse, other family member) receives an income from the trust for life or a stated
number of years, and the trust principal (the remainder) is distributed to the charity at the end of
the income period.
A charitable remainder trust is especially advantageous for donors with highly-appreciated assets,
such as growth stocks and mutual funds or raw land, that need to be sold and converted to
income-producing assets.
continued on next slide
The Charitable Remainder Trust
9Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Advantages Disadvantages+ -
The donor can give highly-appreciated
property to the trust and eliminate capital
gains tax on the appreciation when the gifted
asset is sold by the charity.
Non-income-producing property can become
income producing, since the charity can sell
the asset and use the proceeds to purchase
income-producing assets.
The income beneficiary (donor, spouse, other
family member) may realize an increase in
current income.
A current income tax deduction is available to
taxpayers who itemize.
The size of the donor's estate is reduced for
federal estate tax purposes.
Donation of property to the trust is
irrevocable.
Income paid to someone other
than the donor or donor's spouse
may incur gift tax and/or
generation skipping transfer tax.
How Does a Charitable Remainder Trust Work?
10Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Donor
Donated
Asset(s)
The donor transfers the donated
asset(s) to an irrevocable charitable
remainder trust and receives a
current income tax deduction based
on the value of the charity's
remainder interest.
Charitable Remainder Trust
Non-Charitable
Income Beneficiary
Charity (Remainder
Beneficiary)
Remaining
Trust AssetsIncome
Payments
At the end of the
income period, the
charity receives the
remaining trust
assets.
The non-charitable income
beneficiary (e.g., donor, spouse,
other family member) receives a
stream of income for life or a
term not to exceed 20 years.
Charitable
Remainder
Trust
Variations:
Gifts of remainder interests are
deductible for federal income tax
purposes only if made to one of
the following:
1
2
charitable remainder annuity trust (CRAT);
charitable remainder unitrust (CRUT); or
pooled income fund.3
Charitable Remainder Trust Variations
11Giving Today to Guarantee Tomorrow: A Charitable Trust Review
How Are a Charitable Remainder Annuity Trust (CRAT) and
a Charitable Remainder Unitrust (CRUT) Different?
There are two primary differences between these variations of the charitable remainder trust:
CRAT CRUT
Income
Payments
The yearly income stream is a fixed
amount determined at inception of the
trust and expressed as either a fixed
percentage of the initial value of trust
assets or as a fixed dollar amount; must
be equal to at least 5% and not more
than 50% of the initial value of trust
assets and must remain constant.
The yearly income stream is based on a
percentage of the current value of trust
assets; expressed as a fixed percentage
of trust assets (not less than 5% or more
than 50%) at inception of the trust.
Since trust assets must be revalued each
year, income payments may increase or
decrease if trust assets increase or
decrease in value.
Additional
Contributions
Not allowed. Trust document may provide for
additional contributions.
What Is a Pooled Income Fund?
12Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Donor
Donated
Asset(s)
The donor transfers the donated asset(s) to a
charity's pooled income fund, where the
donation is commingled with other donated
assets and managed by the charity in a trust.
The donor receives a current income tax
deduction based on the age(s) of the
beneficiary(ies) and the fund's rate of return.
Pooled Income
Fund
Non-Charitable Income
Beneficiary
Charity (Remainder Beneficiary)
Remaining
Assets
Income
Payments
When the income beneficiaries are all
deceased, the remaining property
reverts to the charity for its use.
The non-charitable income beneficiary (e.g., donor, spouse, other
family member) receives a pro rata share of the income earned by the
trust for life.
The Charitable
Gift Annuity…
Another
Alternative
A charitable gift annuity allows a donor to irrevocably transfer property to a
charity in return for a lifetime income and an immediate income tax deduction.
There is no trust involved. Instead, through a contractual agreement, the charity
pays a fixed amount to one or two annuitants (e.g., the donor alone or the donor
and spouse) for life. In addition, the annuity payments from the charity may begin
immediately or be deferred until a future point in time.
A pooled income fund is a trust
maintained by a public charity.
Donors contribute assets to this trust
maintained by the charity and those
assets are commingled and managed
together with assets donated by
other individuals, all of whom have
retained an income interest.
The Charitable Lead (or Income) Trust
13Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Donor
Donated
Asset(s)
The donor transfers the donated
asset(s) to an irrevocable charitable
lead trust and receives a current
income tax deduction for the
present value of the charity's
income interest.
Charitable
Lead Trust
Charity (Income
Beneficiary)
Non-Charitable Remainder
Beneficiary
Remaining
Assets
Income
Payments
At the end of the income period, the remaining
trust assets go to the final beneficiary(ies)
named by the donor. The final beneficiaries can
be the donor, if the term of the trust is for a set
number of years, or, for example, the donor's
surviving spouse, children or grandchildren.
The charity receives a fixed annual income from
the trust for a specified number of years or for the
lifetimes of specified individuals (e.g., the donor or
the donor and spouse).
The charitable lead trust works in reverse
fashion from the charitable remainder trust…
the named charity receives a fixed amount of
income from the trust for a specified number
of years or for the lifetimes of specified
individuals, such as the donor or the donor
and spouse.
At the end of that time, the donor, donor's
estate or individuals named by the donor
receive the remaining trust assets.
A Comparison of Charitable Trusts
14Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Charitable
Remainder Annuity
Trust (CRAT)
Charitable
Remainder Unitrust
(CRUT)
Pooled Income Fund Charitable Lead
Trust
Primary
objectives
Income and estate
tax savings; fixed
income stream
Income and estate
tax savings; income
hedged against
inflation
Income and estate
tax savings; income
reflecting pooled
investment results
Income and estate
tax savings;
preservation of trust
assets for final
beneficiaries
Trust property Money or tangible
assets
Money or tangible
assets
Money or equities Money or tangible
assets
Trust valuation At inception only Annually Not applicable At inception only
Additional
contributions
Not allowed Yes, if permitted by
trust document
Yes Yes, if permitted by
trust document
Current income
tax deduction
Yes (generally larger
than with unitrust)
Yes (generally
smaller than with
annuity trust)
Yes Yes
continued on next slide
A Comparison of Charitable Trusts
15Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Charitable
Remainder Annuity
Trust (CRAT)
Charitable
Remainder Unitrust
(CRUT)
Pooled Income Fund Charitable Lead
Trust
Income
beneficiary
Donor or anyone
else named by
donor
Donor or anyone
else named by
donor
Donor or anyone
else named by
donor
Named charity
Income paid to
income
beneficiary
Fixed dollar amount
each year
Fixed percentage of
trust assets each
year
Donor's pro rata
share of income
earned by the trust
Fixed dollar amount
or percentage of
trust assets
Final beneficiary Named charity Named charity Named charity Donor or other
beneficiaries named
by donor
Trustee Selected by donor
(can include donor
or the charity)
Selected by donor
(can include donor
or the charity)
The charity Selected by donor
(can include donor
or the charity)
The Wealth Replacement Trust
16Giving Today to Guarantee Tomorrow: A Charitable Trust Review
The Problem:
Through a charitable remainder trust (or charitable gift annuity), a charitably-minded person can
realize certain income and estate tax objectives, while ultimately providing assets to a favorite
charity. In doing so, however, the donor's family will be deprived of those assets that they might
otherwise have received.
A Potential Life Insurance Solution:
In order to replace the value of the assets transferred to a charitable remainder trust (or
charitable gift annuity), the donor establishes a second trust - an irrevocable life insurance trust -
and the trustee acquires life insurance on the donor's life in an amount equal to the value
transferred to the charitable remainder trust or charitable gift annuity.
Using the charitable deduction income tax savings and the annual cash flow from the remainder
trust or gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then
used to pay the life insurance policy premiums. At the donor's death, the life insurance proceeds
generally pass to the donor's heirs free of income tax and estate tax, replacing the assets that
then belong to the charity.
The Wealth Replacement Trust in Action
17Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Donor
Donated Asset(s)
The donor receives an income
stream for life or a term not to
exceed 20 years.
Charitable Remainder Trust or Gift Annuity
Charity (Remainder Beneficiary) Donor‘s Heirs
Remaining Trust Assets
Income
Stream
Wealth Replacement
Trust (Irrevocable Life
Insurance Trust)
The donor's heirs receive
the life insurance proceeds,
free of estate tax.
At the donor's death, the
remaining trust assets revert to the
charity for its use.
The donor establishes
an irrevocable life
insurance trust, which
purchases insurance on
the donor's life.
The donor uses the income
stream, together with the
charitable deduction income
tax savings, to make annual
gifts to the irrevocable life
insurance trust, which then
pays the life insurance
premiums.
The donor transfers the donated asset(s) to an irrevocable
charitable remainder trust or gift annuity and receives a
current income tax deduction based on the value of the
charity's remainder interest.
Annual Gifts
Insurance
Policy
Life Insurance
Proceeds
Charitable Trust Action Checklist
18Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Do you have assets (particularly highly-appreciated assets) you want to remove from your
estate to avoid federal estate tax?
Do you have highly-appreciated and/or non-income-producing assets you want to turn into
income-producing assets without paying capital gains tax?
Would you benefit from a significant current income tax deduction?
In consultation with your professional advisor:
Analysis...
Do you need current income or do you want to defer income for the future?
Do you want a fixed income or an income that varies each year depending on the value of
the assets in the trust?
Do you want to maximize the benefit to yourself or to the charity?
Will you want to make additional contributions to the trust in the future?
If a charitable trust is right for you, decide which type of trust to use:
continued on next slide
Charitable Trust Action Checklist
19Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Use a qualified attorney to draft the trust document, which names both the charitable and
non-charitable trust beneficiaries and defines the amount of yearly income to be paid and
for how long.
Decide whether you will serve as trustee or appoint the charity as trustee.
Donate the appreciated asset(s) to the trust. The trustee then arranges for the sale of the
asset(s) and decides how the money will be reinvested in order to generate the required
income.
Determine if life insurance should be purchased on your life to replace trust assets that your
family might otherwise have received.
Implementation…
A Note About The Federal Estate Tax
20Giving Today to Guarantee Tomorrow: A Charitable Trust Review
Whether your estate is actually subject to the federal estate tax will depend on the size of your
estate, the year you die and whether future Congressional action modifies the estate tax rules.

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  • 1. © 2013 VSA, LP Valid only if used prior to January 1, 2014. The information, general principles and conclusions presented in this report are subject to local, state and federal laws and regulations, court cases and any revisions of same. While every care has been taken in the preparation of this report, neither VSA, L.P. nor The National Underwriter is engaged in providing legal, accounting, financial or other professional services. This report should not be used as a substitute for the professional advice of an attorney, accountant, or other qualified professional. Giving Today to Guarantee Tomorrow A Charitable Trust Review 1c2-01
  • 2. Why Consider a Charitable Gift? 2Giving Today to Guarantee Tomorrow: A Charitable Trust Review People give to charities for a variety of reasons. They give: According to the Giving USA Foundation, individual giving accounted for 73% of all contributions to charitable organizations in 2011.* ? Because they have compassion for the less fortunate. From a belief that they owe something back to society. To support a favored institution or cause. For the recognition attained by making substantial charitable donations. To benefit from the financial incentives our tax system provides for charitable gifts. 1 2 3 4 5 * Source: Giving USA FoundationTM - Giving USA 2012 Executive Summary Regardless of your reasons for giving, a careful review of the various ways to structure charitable gifts can help make your gifts more meaningful, both to you and to the charities you choose to support.
  • 3. How Can Charitable Gifts Be Structured? 3Giving Today to Guarantee Tomorrow: A Charitable Trust Review Outright Gifts Today Some people prefer to make outright gifts of cash or other assets to their charities of choice. In many situations, an immediate charitable contribution makes sense… the charity receives the cash or property at once, the donor receives immediate tax benefits and the transaction is complete. Retirement Plan Gifts A charity can be named as beneficiary of the funds in an IRA or employer-sponsored retirement plan, which provides a double tax benefit…the charitable gift will be deductible for estate tax purposes and the charity will owe no income tax on the funds it receives. Outright Gifts at Death Other people wish to make sizeable charitable contributions, but are hesitant to do so during their lifetime. They may depend on the income produced by their assets, want a family member to receive some benefit from the property, or simply be concerned about what the future will bring in terms of their financial needs. As a result, they decide to wait and make charitable gifts at their death, through a will or trust. Split-Interest Gifts If you want to make a charitable gift, especially a substantial one, there are charitable giving techniques available that allow you to make the gift today, while retaining an interest in the property and receiving both immediate and longer-term tax benefits. There is, however, another alternative…
  • 4. Tax Benefits of Charitable Giving 4Giving Today to Guarantee Tomorrow: A Charitable Trust Review Federal Income Tax Deduction Type of Asset Deduction Based on: AGI Limit Public Charity Private Charity 1. Cash Amount Given 50% 30% 2. Ordinary Income and Short-Term Capital Gains Property Donor's Cost Basis 50% 30% 3. Long-Term Capital Gains Property (general treatment) Fair Market Value 30% 20% 4. Tangible Personal Property: -Use related to charity's function -Use unrelated to charity's function Fair Market Value Donor's Cost Basis 30% 30% 20% 20% Gifts to qualified charitable organizations are deductible up to a maximum of 50% of the donor's adjusted gross income (AGI), depending on the charitable organization and type of asset given. If the value of the property given exceeds the donor's AGI limit, the excess can be carried over and deducted for up to five years. The donor must itemize (a portion of itemized deductions are phased out for taxpayers with AGIs above certain limits). While generally not the primary motivation behind charitable giving, it is important to understand how the tax savings generated by charitable gifts can fit into your overall financial and estate planning. continued on next slide
  • 5. Tax Benefits of Charitable Giving 5Giving Today to Guarantee Tomorrow: A Charitable Trust Review Federal Gift Tax Irrevocable gifts to charity are not subject to federal gift taxation. Federal Estate Tax Deduction A federal estate tax deduction is allowed for charitable gifts made at death, whether through a will, a trust or from a life insurance policy. There is no limit on the federal estate tax charitable deduction.
  • 6. Split-Interest Charitable Giving Techniques 6Giving Today to Guarantee Tomorrow: A Charitable Trust Review With a split-interest charitable gift, the asset is split into two parts: Income Interest: Through the use of a charitable trust, the donor transfers the asset(s) to the trust and names a beneficiary for either the income interest or the remainder interest, with the charity receiving the other interest. Assuming the charitable trust is properly designed, a person making a split-interest gift may also realize some or all of these tax benefits: 1 2 The stream of income produced by the asset. Remainder Interest: The principal remaining after the income interest is paid. A current federal income tax deduction; Avoidance or delay of capital gains taxation; and/or A reduction of the federal estate tax bill. Depending on your personal and charitable giving objectives, there are several different types of charitable trusts from which to select.
  • 7. Types of Charitable Trusts 7Giving Today to Guarantee Tomorrow: A Charitable Trust Review Charitable Remainder Trusts A beneficiary named by the donor receives the income interest for life or for a stated number of years, after which the remainder interest is donated to the charity. Charitable Lead (or Income) Trusts The opposite… the charity receives the income interest for a stated period of time, with the remainder interest then going to a beneficiary named by the donor. There are two types of charitable trusts, each of which treats the income interest and remainder interest differently: While each type of charitable trust satisfies different objectives, they share certain common features: During Life In order to realize maximum tax benefits, most people create charitable trusts during their lifetime, especially during their highest income-producing years. Tax-Exempt Charities The gift must be made to a tax-exempt charity approved by the IRS in order to provide the desired tax benefits. Irrevocable Once a charitable trust is created and becomes operational, it is irrevocable… you cannot regain ownership of property given to the trust. Income Tax Deduction A split-interest gift to a charitable trust results in a current income tax deduction, assuming the taxpayer itemizes.
  • 8. The Charitable Remainder Trust 8Giving Today to Guarantee Tomorrow: A Charitable Trust Review A charitable remainder trust may be the solution for someone who wants to donate property to a charity during lifetime and receive an immediate income tax deduction, while reserving an income from the property for themselves, their spouses or even for other family members. Using a charitable remainder trust, the donor receives an immediate charitable income tax deduction based on the present value of the charity's remainder interest. The income beneficiary (donor, spouse, other family member) receives an income from the trust for life or a stated number of years, and the trust principal (the remainder) is distributed to the charity at the end of the income period. A charitable remainder trust is especially advantageous for donors with highly-appreciated assets, such as growth stocks and mutual funds or raw land, that need to be sold and converted to income-producing assets. continued on next slide
  • 9. The Charitable Remainder Trust 9Giving Today to Guarantee Tomorrow: A Charitable Trust Review Advantages Disadvantages+ - The donor can give highly-appreciated property to the trust and eliminate capital gains tax on the appreciation when the gifted asset is sold by the charity. Non-income-producing property can become income producing, since the charity can sell the asset and use the proceeds to purchase income-producing assets. The income beneficiary (donor, spouse, other family member) may realize an increase in current income. A current income tax deduction is available to taxpayers who itemize. The size of the donor's estate is reduced for federal estate tax purposes. Donation of property to the trust is irrevocable. Income paid to someone other than the donor or donor's spouse may incur gift tax and/or generation skipping transfer tax.
  • 10. How Does a Charitable Remainder Trust Work? 10Giving Today to Guarantee Tomorrow: A Charitable Trust Review Donor Donated Asset(s) The donor transfers the donated asset(s) to an irrevocable charitable remainder trust and receives a current income tax deduction based on the value of the charity's remainder interest. Charitable Remainder Trust Non-Charitable Income Beneficiary Charity (Remainder Beneficiary) Remaining Trust AssetsIncome Payments At the end of the income period, the charity receives the remaining trust assets. The non-charitable income beneficiary (e.g., donor, spouse, other family member) receives a stream of income for life or a term not to exceed 20 years. Charitable Remainder Trust Variations: Gifts of remainder interests are deductible for federal income tax purposes only if made to one of the following: 1 2 charitable remainder annuity trust (CRAT); charitable remainder unitrust (CRUT); or pooled income fund.3
  • 11. Charitable Remainder Trust Variations 11Giving Today to Guarantee Tomorrow: A Charitable Trust Review How Are a Charitable Remainder Annuity Trust (CRAT) and a Charitable Remainder Unitrust (CRUT) Different? There are two primary differences between these variations of the charitable remainder trust: CRAT CRUT Income Payments The yearly income stream is a fixed amount determined at inception of the trust and expressed as either a fixed percentage of the initial value of trust assets or as a fixed dollar amount; must be equal to at least 5% and not more than 50% of the initial value of trust assets and must remain constant. The yearly income stream is based on a percentage of the current value of trust assets; expressed as a fixed percentage of trust assets (not less than 5% or more than 50%) at inception of the trust. Since trust assets must be revalued each year, income payments may increase or decrease if trust assets increase or decrease in value. Additional Contributions Not allowed. Trust document may provide for additional contributions.
  • 12. What Is a Pooled Income Fund? 12Giving Today to Guarantee Tomorrow: A Charitable Trust Review Donor Donated Asset(s) The donor transfers the donated asset(s) to a charity's pooled income fund, where the donation is commingled with other donated assets and managed by the charity in a trust. The donor receives a current income tax deduction based on the age(s) of the beneficiary(ies) and the fund's rate of return. Pooled Income Fund Non-Charitable Income Beneficiary Charity (Remainder Beneficiary) Remaining Assets Income Payments When the income beneficiaries are all deceased, the remaining property reverts to the charity for its use. The non-charitable income beneficiary (e.g., donor, spouse, other family member) receives a pro rata share of the income earned by the trust for life. The Charitable Gift Annuity… Another Alternative A charitable gift annuity allows a donor to irrevocably transfer property to a charity in return for a lifetime income and an immediate income tax deduction. There is no trust involved. Instead, through a contractual agreement, the charity pays a fixed amount to one or two annuitants (e.g., the donor alone or the donor and spouse) for life. In addition, the annuity payments from the charity may begin immediately or be deferred until a future point in time. A pooled income fund is a trust maintained by a public charity. Donors contribute assets to this trust maintained by the charity and those assets are commingled and managed together with assets donated by other individuals, all of whom have retained an income interest.
  • 13. The Charitable Lead (or Income) Trust 13Giving Today to Guarantee Tomorrow: A Charitable Trust Review Donor Donated Asset(s) The donor transfers the donated asset(s) to an irrevocable charitable lead trust and receives a current income tax deduction for the present value of the charity's income interest. Charitable Lead Trust Charity (Income Beneficiary) Non-Charitable Remainder Beneficiary Remaining Assets Income Payments At the end of the income period, the remaining trust assets go to the final beneficiary(ies) named by the donor. The final beneficiaries can be the donor, if the term of the trust is for a set number of years, or, for example, the donor's surviving spouse, children or grandchildren. The charity receives a fixed annual income from the trust for a specified number of years or for the lifetimes of specified individuals (e.g., the donor or the donor and spouse). The charitable lead trust works in reverse fashion from the charitable remainder trust… the named charity receives a fixed amount of income from the trust for a specified number of years or for the lifetimes of specified individuals, such as the donor or the donor and spouse. At the end of that time, the donor, donor's estate or individuals named by the donor receive the remaining trust assets.
  • 14. A Comparison of Charitable Trusts 14Giving Today to Guarantee Tomorrow: A Charitable Trust Review Charitable Remainder Annuity Trust (CRAT) Charitable Remainder Unitrust (CRUT) Pooled Income Fund Charitable Lead Trust Primary objectives Income and estate tax savings; fixed income stream Income and estate tax savings; income hedged against inflation Income and estate tax savings; income reflecting pooled investment results Income and estate tax savings; preservation of trust assets for final beneficiaries Trust property Money or tangible assets Money or tangible assets Money or equities Money or tangible assets Trust valuation At inception only Annually Not applicable At inception only Additional contributions Not allowed Yes, if permitted by trust document Yes Yes, if permitted by trust document Current income tax deduction Yes (generally larger than with unitrust) Yes (generally smaller than with annuity trust) Yes Yes continued on next slide
  • 15. A Comparison of Charitable Trusts 15Giving Today to Guarantee Tomorrow: A Charitable Trust Review Charitable Remainder Annuity Trust (CRAT) Charitable Remainder Unitrust (CRUT) Pooled Income Fund Charitable Lead Trust Income beneficiary Donor or anyone else named by donor Donor or anyone else named by donor Donor or anyone else named by donor Named charity Income paid to income beneficiary Fixed dollar amount each year Fixed percentage of trust assets each year Donor's pro rata share of income earned by the trust Fixed dollar amount or percentage of trust assets Final beneficiary Named charity Named charity Named charity Donor or other beneficiaries named by donor Trustee Selected by donor (can include donor or the charity) Selected by donor (can include donor or the charity) The charity Selected by donor (can include donor or the charity)
  • 16. The Wealth Replacement Trust 16Giving Today to Guarantee Tomorrow: A Charitable Trust Review The Problem: Through a charitable remainder trust (or charitable gift annuity), a charitably-minded person can realize certain income and estate tax objectives, while ultimately providing assets to a favorite charity. In doing so, however, the donor's family will be deprived of those assets that they might otherwise have received. A Potential Life Insurance Solution: In order to replace the value of the assets transferred to a charitable remainder trust (or charitable gift annuity), the donor establishes a second trust - an irrevocable life insurance trust - and the trustee acquires life insurance on the donor's life in an amount equal to the value transferred to the charitable remainder trust or charitable gift annuity. Using the charitable deduction income tax savings and the annual cash flow from the remainder trust or gift annuity, the donor makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums. At the donor's death, the life insurance proceeds generally pass to the donor's heirs free of income tax and estate tax, replacing the assets that then belong to the charity.
  • 17. The Wealth Replacement Trust in Action 17Giving Today to Guarantee Tomorrow: A Charitable Trust Review Donor Donated Asset(s) The donor receives an income stream for life or a term not to exceed 20 years. Charitable Remainder Trust or Gift Annuity Charity (Remainder Beneficiary) Donor‘s Heirs Remaining Trust Assets Income Stream Wealth Replacement Trust (Irrevocable Life Insurance Trust) The donor's heirs receive the life insurance proceeds, free of estate tax. At the donor's death, the remaining trust assets revert to the charity for its use. The donor establishes an irrevocable life insurance trust, which purchases insurance on the donor's life. The donor uses the income stream, together with the charitable deduction income tax savings, to make annual gifts to the irrevocable life insurance trust, which then pays the life insurance premiums. The donor transfers the donated asset(s) to an irrevocable charitable remainder trust or gift annuity and receives a current income tax deduction based on the value of the charity's remainder interest. Annual Gifts Insurance Policy Life Insurance Proceeds
  • 18. Charitable Trust Action Checklist 18Giving Today to Guarantee Tomorrow: A Charitable Trust Review Do you have assets (particularly highly-appreciated assets) you want to remove from your estate to avoid federal estate tax? Do you have highly-appreciated and/or non-income-producing assets you want to turn into income-producing assets without paying capital gains tax? Would you benefit from a significant current income tax deduction? In consultation with your professional advisor: Analysis... Do you need current income or do you want to defer income for the future? Do you want a fixed income or an income that varies each year depending on the value of the assets in the trust? Do you want to maximize the benefit to yourself or to the charity? Will you want to make additional contributions to the trust in the future? If a charitable trust is right for you, decide which type of trust to use: continued on next slide
  • 19. Charitable Trust Action Checklist 19Giving Today to Guarantee Tomorrow: A Charitable Trust Review Use a qualified attorney to draft the trust document, which names both the charitable and non-charitable trust beneficiaries and defines the amount of yearly income to be paid and for how long. Decide whether you will serve as trustee or appoint the charity as trustee. Donate the appreciated asset(s) to the trust. The trustee then arranges for the sale of the asset(s) and decides how the money will be reinvested in order to generate the required income. Determine if life insurance should be purchased on your life to replace trust assets that your family might otherwise have received. Implementation…
  • 20. A Note About The Federal Estate Tax 20Giving Today to Guarantee Tomorrow: A Charitable Trust Review Whether your estate is actually subject to the federal estate tax will depend on the size of your estate, the year you die and whether future Congressional action modifies the estate tax rules.