Charitable Remainder Trusts
Charitable remainder trusts are gift arrangements that enable you to contribute to Southeastern while providing an income for yourself and/or another beneficiary for life or a term of years. This individually managed trust can be tailored to suit your objectives - you may build a retirement account, generate a higher income from assets you currently own, or provide for your spouse, family members or other beneficiaries. The charitable remainder trust offers a number of attractive benefits:
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Annual income for yourself and/or other beneficiaries;
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Immediate federal income tax charitable deduction;
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Elimination of capital gain taxes on the transfer of appreciated property;
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Estate tax savings;
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Ability to designate the future use of the gift proceeds at Southeastern.
A remainder trust can be established with an irrevocable gift valued at $50,000 or more. A variety of assets can be donated to a trust - cash, publicly traded stocks and bonds, closely held stock, real estate and, in some instances, tangible personal property such as works of art.
There are two basic kinds of charitable remainder trusts ¬the charitable remainder unitrust and the charitable remainder annuity trust.
Charitable Remainder Unitrust
The unitrust pays the income beneficiary(ies) a variable income, based on a fixed percentage of the trust assets as revalued once each year. Typically, the fixed percentage is between 5-8%. One of the advantages of the unitrust is that your income from the trust can increase as the trust principal grows over time. You may make additional contributions to a unitrust at any time.
Example - Unitrust
Charitable remainder unitrust established with appreciated stock valued at $100,000; stock had been bought for $10,000 several years before. Annual payout rate is 5%; payments are to be made to the 65-year-old donor for life. It is assumed that the trust earns a 10% total return on average.
Original Trust Principal...........................$100,000
Immediate Income Tax Deduction……….$48,600
Income Tax Savings (36% rate)…………….$17,500
Capital Gain Tax 5avings (20% rate)…….$18,000
First Year Payout To Beneficiary………….. $5,000
Anticipated Payout To Beneficiary After
Five Years………………………………………………$6,100
Charitable Remainder Annuity Trust
The annuity trust pays the income beneficiary(ies) a fixed annual income determined at the outset. The annuity trust may be advantageous if you are more interested in the security of a constant return than in the long-term growth potential of the unitrust.
It is possible to structure an annuity trust to pay the income beneficiary(ies) tax-exempt income. Such a trust can be funded with cash or with tax-exempt bonds. Additions may not be made to an annuity trust; however, multiple trusts can be set up.
Example - Annuity Trust
Charitable remainder annuity trust established with appreciated stock valued at $100,000; stock had been bought for $25,000 several years before. Fixed annual payout is 6% of the value of the initial trust assets, or $6,000. Payments are to be made to the 75-year-old donor for life.
Original Trust Principal…………………………..$100,000
Immediate Income Tax Deduction………..$59,000
Income Tax Savings (36% rate)………………$21,200
Capital Gain Tax Savings (20% rate) $I5,000
Fixed Annual Payment To Beneficiary……$6,000
Charitable QTIP Trust
A QTIP trust is another type of irrevocable trust through which you can make a significant gift to Southeastern, provide a lifetime income to your spouse, and avoid federal estate and gift taxes on the trust principal. A key advantage of the QTIP trust is that your spouse can have access to the trust principal as well as the income, should unexpected family needs arise. SDF does not serve as trustee of QTIP trusts.
For more information, please contact:
Lynn Harris Horgan
(985) 549-2239
or toll free (866) 474-4438
email to: lhorgan@selu.edu