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You're considering a lifetime gift in partnership
with the Foundation > Your planning objective is increased
income > Your preference is fixed income payments >
You want to retain some flexibility in the management of your
gift
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The charitable remainder annuity trust is an individually managed trust that combines regular, predictable income with some flexibility in management and investment.
- The annuity trust pays its beneficiaries –
you, your spouse, family members, or other individuals –
fixed-dollar income or a fixed percentage of the initial value
of the assets that funded the trust.
- Income from your annuity trust can be paid
to you and your other beneficiaries for lifetime or for a term
of up to 20 years.
- No upfront capital gains tax is payable if
you fund your annuity trust with appreciated property. So, you
can contribute appreciated but low-yielding assets and put the
entire value of your gift to work generating higher income for
you.
- Besides avoiding capital gains tax, you also
receive a charitable income tax deduction when you create an annuity
trust. Your deduction will be based on the full fair market value
of the assets you contributed, reduced by the present value of
the income interest you retained.
- The charitable income tax deduction for an
annuity trust is usually higher than that for a unitrust, because
the unitrust is likely to pay out more income to the beneficiaries
over time. The Foundation's Trust Counsel, Laurie Valentine, will
happily provide deduction comparisons for you and your advisors.
- When your annuity trust terminates –
at the death of the last beneficiary or at the end of the trust
term – the remaining balance will be available for the use
you designated when you created the trust.
- Annuity trusts can’t be flexible in their
payout as unitrusts can. Therefore they can’t accept gifts
of illiquid assets, invest solely for growth, or pay out net income
only.
- The Foundation can serve as the trustee of
your annuity trust, or you or a financial advisor or institution
can serve.
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Example
Your portfolio contains highly appreciated
securities and many tax-free bonds. You decide to place $250,000
of your stocks into an annuity trust paying income to you
and your husband with the remainder to benefit your church
and state, national and international missions.
What are your benefits?
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Donors
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Husband and Wife, 70 and 68
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Click here
to calculate
the benefits
an annuity
trust would
give you.
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Asset contributed
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Appreciated stocks
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Amount contributed
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Fair market value $250,000
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Cost basis
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$125,000
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Income rate
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5%
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Annual income
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$12,500
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Charitable deduction
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$107,924
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Tax savings
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@ 35% rate: $37,773
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How Do You Create an Annuity Trust?
Setting up a charitable remainder annuity trust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we can provide you with an initial draft of the annuity trust agreement for review by you and your attorney. Once your trust agreement is signed, you can fund your annuity trust by transferring assets to your trustee.
Email us, complete the personal illustration form, or call us at 502-489-3533 so that we can assist you through every step of the process.
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Which Gift Plan Works Best for You?
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You may be comparing an annuity trust with other gifts that return income – a charitable gift annuity or a charitable remainder unitrust. Each gift addresses particular financial goals, and you should choose the one that is the best fit for you.
Like the annuity trust, the gift annuity
pays you fixed income. Because it is a simple obligation and
not an individually managed trust, we can often pay you a
higher income rate on a gift annuity than we can on an annuity
trust. In addition, a gift annuity’s income payments
come to you partially tax-free, and partially as capital-gains
income if you contributed appreciated assets. All income of
an annuity trust will be taxed to you at ordinary income rates.
The annuity trust offers management flexibility, multiple beneficiaries and existence for a term of years rather than the beneficiaries’ lifetime.
The unitrust is even more flexible. In addition, its payout structure allows for income growth over time. We can show you how a unitrust paying 5 percent income will eventually outperform an annuity trust paying 6 or 7 percent.
The following chart compares the income and tax benefits from these three gifts:
Donors: Husband and Wife, 70 and 68
Asset contributed: $100,000, cash
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Charitable Gift Annuity
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Annuity Trust
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Unitrust
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Income rate
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6.1%
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5%
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5%
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Annual income
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$6,100 (fixed)
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$5,000 (fixed)
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$5,000 (variable)
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Tax-free
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$3,349
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-0-
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-0-
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Ordinary income
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$2,751
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$5,000
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$5,000
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Charitable deduction
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$28,390
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$43,170
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$40,902
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