Charitable Estate Planning
Charitable Remainder Trust

[Photo from the production, "The Crystal and The Sphere".]Individuals who wish to support the future of the John F. Kennedy Center for the Performing Arts and its programs may wish to consider establishing a Charitable Remainder Trust.

How a Charitable Remainder Trust Works:

  • You create a charitable remainder trust and transfer assets to it.
  • The trustee invests the assets in order to pay the benificiary an annual income. The income may continue for one or more lifetimes, or for a term of 20 or fewer years.
  • When the trust term ends, whatever remains in the CRT passes to one or more qualified nonprofit organizations.

Benefits Charitable Remainder Trusts provide include:

  • Lifetime or period of years income for the beneficiary
  • Income to a parent, child, or some person other than the donor without transferring a large sum of money at one time
  • A possible way of supplementing retirement income
  • Immediate income tax charitable deductions for the donor
  • A way of avoiding capital gains taxes on appreciated property
  • Removing assets from the donor's taxable estate
  • A way of converting non-income producing assets, such as non dividend stock, to a stream of income with favorable tax consequences
  • The personal satisfaction of making a major gift during lifetime, that otherwise might have to be made via one's will.

Assets That Can be Used To Fund A Charitable Remainder Trusts:

The Charitable Remainder Trust can be very accommodating as regards the type of asset you might use to make the gift. You could consider funding a CRT with:

  • Cash
  • Appreciated securities sold on a major stock exchange
  • Real Estate (as long as it isn't mortgaged)
    • A residence
    • Commercial real estate
    • Undeveloped land
  • Stock in a closely held corporation
  • Tangible personal property:
    • Works of art
    • Musical instruments
    • Antiques
    • Valuable collections

Types of Charitable Remainder Trust:

There are two types of charitable remainder trusts, the Unitrust and the Annuity Trust.

Charitable Remainder Unitrust

This version of the CRT pays the income beneficiaries income equal to a percentage of the value of the assets in the trust. When the donor establishes the Unitrust he/she decides what that percentage will be. The rate must be at least 5%.

Each year the trustee values the assets in the Unitrust to determine how much will be paid out in the coming year. For example; an individual might fund a Unitrust with $100,000 and decide that it is to pay a parent 5% per year for life. In year #1, the parent would receive $5,000 from the Unitrust. At the beginning of year #2 the assets in the trust are valued at $103,000. The income in year #2 would be 5% of $103,000, or $5,150.00.

A gift to the parent of $42,000 is reported to the Internal Revenue Service in the calendar year the trust is funded. The donor may take a tax deduction of $58,000 in the calendar year the trust is funded.

Charitable Remainder Annuity Trust

This version of the CRT pays out a fixed dollar amount each year which will not vary. The donor selects a percentage for the payout when the Annuity Trust is created. When the assets are put into the trust and valued the dollar amount of the payout is determined and will remain the same for the life of the Annuity Trust. For example; a donor creates a 6% Annuity Trust (it, too, must be at least 5%) and funds it with $100,000 cash. The payout will be $6,000 per year regardless of the value of the assets in the Annuity Trust from this point on.

$50,000 is reported to the Internal Revenue Service as an allowable deduction in the calendar year the trust is funded.