|
[Back to Planned Giving]
A charitable gift annuity is a simple contract between the donor and a charity wherein, in exchange for the donor’s irrevocable gift of cash, securities or other agreed upon assets, the charity agrees to pay one or two annuitants a fixed sum each year for life. The donor is entitled to a charitable income tax deduction based on the difference between the present value of the annuity that will be paid to the annuitant and the fair market value of the assets transferred to the charity. A variation on the standard CGA is the Deferred CGA where a donor may acquire a charitable gift annuity under terms that defer the starting date for the payment of the annuity to some time in the future, such as the donor’s retirement. This variation will generate a charitable income tax deduction when the donor may be in a higher tax bracket during working years, while deferring income to a later time when the tax rate might be lower.
A charitable remainder annuity trust is a gift plan defined by federal tax law that allows the donor to provide a stream of income to one or more income beneficiaries for a fixed term not to exceed 20 years, the life of the income beneficiary(ies) or a combination of the two, while making a generous gift to charity. The donor during his/her lifetime or at death irrevocably transfers cash or marketable securities to the trustee of the trust and secures a charitable income tax, or an estate tax charitable deduction if the gift is made at death, for the present value of the gift that will ultimately go to charity at the end of the trust term. During the trust term the income beneficiary(ies) receive a fixed dollar amount or a fixed percent (no less than 5% nor more than 50% of the value of the trust as determined on the date that the trust is funded). Payments to the income beneficiary(ies) are made annually, semi-annually or quarterly. When the trust term ends, the principal and any accumulations of income are paid to the charitable beneficiary(ies).
The charitable lead trust is the reverse of the charitable remainder trust in that the lead income interest is first paid to one or more charitable beneficiaries, while the remainder is either returned to the donor in which case it is considered a grantor charitable lead trust or it can be paid to an heir or some other third party in which case it is a non-grantor charitable lead trust. The CLT can either be structured in the form of a Charitable Lead Annuity Trust (CLAT) or a Charitable Lead Unitrust (CLUT). The CLAT pays out a fixed amount each year to the charitable beneficiaries, while the CLUT pays out a fixed percentage of the trust’s value as revalued each year. In either case the term may be for any fixed number of years, one or more lifetimes, or a combination of the two.
A charitable remainder unitrust is a gift plan defined by federal tax law that allows a donor to provide income to himself, herself or others for life, a term not to exceed 20 years or a combination of the two, while making a generous gift to one or more charitable organizations of the donor’s choice. The donor during his/her lifetime or at death irrevocably transfers assets in the form of cash, securities or real estate to the trustee of the trust and secures a charitable income tax deduction, or an estate tax charitable deduction if the gift is made at death, for the present value of the gift that will ultimately pass to the charitable organization(s). During the trust term the income beneficiary(ies) receives a fixed percentage of the trust’s assets (no less than 5% nor more than 50%) that is paid annually, semi-annually or quarterly. Because the trust is revalued each year, the donor may add to the trust at any time and receive additional charitable income tax deductions. When the trust term ends the principal and any accumulations of income are paid to the charitable beneficiary(ies).
A net income charitable remainder unitrust is a variation on the standard CRUT where the payout to the income beneficiary(ies) is structured to pay the lesser of a fixed percent (not less than 5%) or the actual ordinary income generated by the trust. Under this variation assets like closely held stock and real estate that may not be expected to produce enough income in the early years can be used to fund the trust and the trustee does not have to be concerned about meeting the payout requirement until the asset is sold and sufficient cash can be invested to meet the payout needs. Often times this is coupled with a make up provision that allows the trustee to "make up" deficiency payments from the earlier years when the actual income did not meet the fixed payout requirements.
The FLIP Trust allows the income beneficiary(ies) to have the best of both worlds. Under this variation the CRUT starts out as a NIMCRUT as defined above. However, it changes or "flips" to a standard CRUT on a date fixed by the donor at the beginning of the trust term, for example, when the income beneficiary reaches a certain age, on a particular date or at some other definable point in time. This has the advantage of allowing the trust to grow in value tax free during the time that the income beneficiary(ies) do not need income and maximize the payout as a standard unitrust at the time the need for income is greatest. Under both the NIMCRUT and FLIP TRUST the charitable income tax deduction is calculated on the date the gift is made to the trust based on the present value of the assets that are ultimately going to pass to the charitable beneficiary(ies).
|
