0:10
A charitable remainder trust is gifted to
an organization after the terms of the trust are complete.
It is standard for a trust to give its income recipient or
recipients a certain amount of money yearly until the completion of the trust.
Once the trust is complete calmly after the death of its income recipients,
the remaining funds are given to the organization named in the contract of the trust.
The charitable remainder unitrust is a gift plan defined by federal tax law that allows
the donor to provide payments to themselves or
others while making a generous gift to charity.
The payments may continue for the lifetime of the beneficiaries named by the donor,
a fixed term of not more than 20 years or a combination of the two.
As a unitrust donor,
the donor irrevocably transfers assets to a trustee of their choice.
For example, the charity or a bank trust department.
These assets are usually cash,
securities, or real estate.
During the unitrust term,
the trustee invests the unitrust assets.
Each year, the trustee distributes a fixed percentage of
the unitrust current value as revalued annually to their beneficiaries.
If the unit trust value goes up from one year to the next,
its payout increases proportionally.
Likewise, if the unitrust value goes down,
the amount it distributes also goes down.
For this reason, it may be to
the donor's advantage to choose a relatively low payout percentage.
That way, the unitrust assets can grow,
which in turn will allow the unitrust yearly payments to grow.
Payments must be between 5% and 50% of
the trust annual value and made out of
trust income or trust principle if the income is not adequate.
Payments may be made annually, semiannually or quarterly.
When the unitrust term ends,
the unitrust principle passes to charity to be used for the purpose the donor designated.
Donors may add funds to the unitrust whenever they like.
The benefits of a charitable remainder trust include;
number one, the donor will qualify for a federal income tax deduction.
Note, the deductions for gifts of
long-term appreciated property will be limited to 30% of the adjusted gross income.
Gifts of cash, short-term appreciated property,
ordinary income property or non-appreciated property
will be limited to 50% of the adjust gross income.
The donor may, if necessary,
take unused deductions of either kind over the next five years
subject to the same 30% or 50% limitation.
Number two. The beneficiaries named by the donor will receive annual payments
for life or for the period the donor designates.
Number three.
If the donor funds a trust with long-term appreciated assets,
these are assets the donor has held more than one year and the trust sells it,
there will be no immediate tax on the capital gain.
If the donor were to sell such an asset themselves,
the donor would owe tax on all of the capital gain realized in the sale.
Number four. Their estate may enjoy a reduced probate costs and state taxes. Number five.
The donor will provide generous support to charity.
And number six.
Their gift will benefit from Expert Asset Management
provided by the same professionals who manage the charity's endowment.
This type of agreement is recommended when the donor's goals are
to secure additional income for self or a loved one.
This could be a charitable remainder in unitrust or variable income,
and a charitable remainder unitrust.
These will provide the donor with a larger immediate income tax deduction,
and the charity with a larger remainder than a charitable gift annuity.
Let's look at how to give it.
The donor creates a charitable remainder trusts then
irrevocably transfers assets to the trust.
The trust is a legal entity with a trustee to oversee it.
The charity can serve as the trustee.
There is a sample of a template for
a charitable remainder trust located in your resources.
Please pause to access that and print it out for reference going forward.
This is a document that creates a legal entity known as a charitable remainder trust.
The charitable remainder trust will have its own federal identification number,
and is required to file its own tax returns.
If the charity is serving as a trustee,
then they will draft the charitable remainder trust agreement.
The donor will then take the draft to their estate planning attorney for review.
This is a very complex agreement and I don't expect
you to understand all the parts in it.
The main purpose of showing you
the template is to get you familiar with what it looks like,
and to provide your resource or refer back to when needed.
As you compare this template to the charitable gift annuity contract,
you can see why the charitable gift annuity contract is considered a simpler document.
It's much easier for a donor to understand the charitable gift annuity contract.
The charitable remainder trust agreement will require the expertise of
an attorney to assist the donor in understanding it.
This complicates the process of making a gift to
a charitable remainder trust although it's still a great planning giving option.
It's just important to note that the process is
more involved with a charitable remainder trust.
This agreement finalizes the terms of the charitable remainder trust.
You will encounter this document when you close this type of gift with the donor.
Because the charity isn't always the trustee,
the donor can create this document without any input from the charity.
In this situation, you will only be listed as a charitable remainder.
Which means when the trust is terminated,
it will make a distribution to your charity.
Even though you're not involved in the creation,
you will want to ask the donor to share a copy of the agreement with you.
That allows you to make sure your list is correctly in the document.
That way, you can fulfill the use and give purposed detail by the donor.
Becoming familiar with this template will make it
easier for you to review such documents.
Brian CaseyAssistant Vice Chancellor for Planned Giving
