Charitable Remainder Trusts
A charitable remainder trust allows the donor to make a substantially larger gift in the future than he or she might be able to make at the present time. In addition, when the trust is created, an income tax charitable deduction may be taken (subject to the limitations provided by law) for the present value of the trust as of its termination. There are two basic kinds of charitable reminder trusts: the charitable remainder unitrust and the charitable remainder annuity trust.
The charitable remainder unitrust provides for payments to the beneficiary or beneficiaries in amounts that may vary and that have the potential to keep up with inflation. The unitrust pays a specified percentage of the market value of the trust’s assets, as determined each year; the unitrust may be augmented by additional contributions.
The charitable remainder annuity trust pays a fixed amount each year—a percentage of the original principal set at the outset; it does not permit additional contributions.
Example of a Charitable Remainder Unitrust:
Mr. and Mrs. Stuart have been actively involved with the National Gallery of Art for a number of years. The remainder of their estate, after other bequests, debts, taxes, and expenses have been paid, will pass to the Gallery, as stated in their wills. Their estate consists of residences, stock, cash, and other property.
To increase their retirement income the Stuarts set up a charitable remainder unitrust, with a designated trustee, using a vacation home and a rental property they no longer need. The trustee will sell these properties and invest the proceeds. The couple will receive an annuity, a fixed percentage of the trust’s value each year. As the trust’s assets grow in value, the annuity payments to the Stuarts will increase, allowing for a greater return in their retirement years. In addition, the Stuarts may be eligible for tax deductions and other benefits.
When the Stuarts’ charitable remainder unitrust terminates, the remaining trust assets will pass to the National Gallery of Art. In the process of making a charitable gift to the National Gallery, the Stuarts have increased their income, reduced their tax burden, and clarified their estate plans.
We invite you to contact us with questions or comments about planned giving; we would welcome the opportunity to discuss these options further with you. We highly recommend that you also speak to a financial adviser.