Charitable Remainder Trusts
A Charitable Remainder Trust provides income either for lifetime or for a term of years to a designated beneficiary(ies).
A Charitable Remainder Unitrust pays income based on a fixed percentage of the trust's assets as revalued each year. As a result, payments will vary from year to year. A Charitable Remainder Annuity Trust pays a fixed dollar amount each year. Charitable Remainder Trusts may be funded with cash, marketable securities, and with debt-free acceptable real estate.
Both the Charitable Remainder Unitrust and the Charitable Remainder Annuity Trust provide an income tax charitable deduction. In addition, when funded with an asset that has grown in value, there can be avoidance of some or all capital gains taxes. Finally, the trust asset is removed from one's estate, offering potential estate tax savings.
When Pacific Lutheran University is the trustee of a Charitable Remainder Trust there are no management fees. The trustee is reimbursed only for actual expenses that are incurred. You may also choose to have a bank or some other institution serve as trustee, or, in some cases, you may wish to serve as your own trustee. The minimum amount needed to fund a Charitable Remainder Trust is $100,000.
Examples
Charitable Remainder Unitrust
Betty and John Alums have rental property valued at $200,000 for which
they paid $50,000 some years ago. The return on this property is about
3 percent. This property is debt free. John is 70 years old and Betty
is 65. They wish to establish a Charitable Remainder Unitrust that will
pay them 6 percent a year for their lifetimes. The income will vary
each year depending on the annual valuation of the trust assets. John
and Betty place the real estate into a Charitable Remainder Unitrust.
The trustee sells the assets and reinvests them in assets that provide
a greater rate of return.
John and Betty will receive an immediate charitable deduction of approximately $64,000. They will also avoid the capital gains tax that they would have paid had they sold the assets themselves. Finally, the assets are removed from their estate, saving possible estate taxes.
Betty and John have the pleasure of making an eventual gift to Pacific Lutheran University.
Charitable Remainder Annuity Trust
Lute Alum has $100,000 in marketable securities for which he paid
$20,000 several years ago. This asset is returning him 2 percent
annually. Because of the increase in the assets' value and the tax he
would incur on such a sale, Lute feels that he "can't afford to sell
and he can't afford to keep" the asset. Lute is 75 years old. He would
like to receive a fixed return of $6,500 (6.5 percent).
By establishing a Charitable Remainder Annuity Trust, Lute can achieve his goal of $6,500 a year in income. The trustee sells the assets and reinvests them for a greater return. Lute avoids the capital gains tax he would have paid had he sold the assets. Lute receives an immediate charitable income tax deduction of approximately $53,000. The assets are removed from Lute's estate and so there are possible estate tax savings as well.
Lute has the knowledge that he will be making an eventual gift to Pacific Lutheran University.