Charitable remainder trusts
"After more than thirty years of my husband being in the business of investments," says a graduate of the 40s, "My husband and I are still learning how not to make mistakes, and, as my husband says, how to separate the wheat from the chaff, the beer from the foam, and a fairly priced investment from an overly priced speculation. Some twenty years ago we funded a small charitable remainder trust to benefit Wheaton. In my humble opinion, it offered continued good management, safety of principal and dependable income. We have gotten all and more than we bargained for and are pleased with the results."
What is a charitable remainder trust?
A charitable remainder trust is a separately-invested irrevocable trust created by designating a person or persons to receive income payments of at least 5 percent annually and transferring assets to a trustee. The trustee may be one or more individuals or a bank in combination with the college. The income beneficiaries may be any persons you choose. They may receive income for their lives, or for a specified period of time, not to exceed twenty years.
A unique feature of a charitable remainder trust is that you may tailor the annual income to meet your needs. The charitable remainder annuity trust pays a fixed dollar amount that you select when you fund the trust. You may prefer the annuity trust if you like the security of a fixed income and can fund the trust entirely at one time. You may not make subsequent additions to an annuity trust.
A charitable remainder unitrust pays an income equal to a percentage of the annual value of the principal; you designate the percentage when you create the trust and the trustee revalues the principal each year to determine that year's income. A unitrust is more flexible than the annuity trust. You may make additional contributions to a unitrust and the investment strategy may vary with your changing financial needs.
You may contribute cash, appreciated securities and real property to a charitable remainder trust. Charitable remainder trusts are unique to each individual and designed to meet specific needs, so Wheaton's Office of Gift Planning works closely with you and your advisor to tailor the trust to meet both your needs and the college's long-term objectives.
Is a charitable remainder trust right for you?
If you wish to retain income or to provide an income for someone else, would like to have your gift separately invested, and are interested in increasing your capacity to make a gift to Wheaton, then a charitable remainder trust may be right for you. A charitable remainder trust is particularly attractive if you fund it with appreciated property because there will be no capital gains tax when you fund the trust or when the trustee sells the asset(s). The minimum amount to establish a charitable remainder trust could range from $100,000 to $300,000 depending on who you select as the trustee, but the minimum also may vary depending on the structure of the trust.
Benefits to You
- You receive a charitable income tax deduction in the year that the trust is funded.
- Your taxable estate may be reduced.
- You avoid capital gains tax on the sale of the appreciated assets.
- You can turn a non-income producing asset into an income-producing one, without capital gains tax liability.
- You make a future gift to Wheaton that reflects your values and interests.
Example
A graduate age 55 wishes to make a gift of $500,000 in appreciated securities with a 50 percent cost basis to the college. Since the alumna does not need income immediately, she is choosing a charitable remainder unitrust with a "flip" provision. This provision permits the individual to receive only the income earned by the trust for a period of time. The purpose is twofold: to minimize income to the donor during peak earning years and to build principal tax free until retirement.
The benefits include:
- A charitable remainder trust funded with: $500,000.
- A fixed income payout rate of: 5 percent (first ten years pays only income earned).
- A current charitable deduction of: approximately 34 percent
- A current capital gains tax savings of:$50,000.
- Amount initially invested for income: $500,000.
- Potential growth of principal in ten years: $830,000.00 (based on 2% income and 5% growth)
- Potential first-year income when "flip" occurs: $41,500.00 (All values are for example purposes only and based on current economic conditions. They may not reflect actual benefits.)
This page is maintained by The Office of Gift Planning. Last updated on 9/27/06.
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