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Charitable Remainder Trust

Charitable Remainder Trusts provide an opportunity to make a significant gift to charitable organizations with major and wide-ranging tax savings.  Trusts are designed to fit the donor’s specific needs and are available in several variations, below are three primary examples of a charitable remainder trust:

1. Annuity trust: pays a fixed dollar amount, which works well if the donor wants reliable income.

2. Standard unitrust: pays a variable amount equal to a stated percentage of the net fair market value of the trust assets as recalculated yearly, providing a possible hedge against inflation.

3. Flip unitrust: converts to a standard unitrust on a triggering event, such as the sale of an unmarketable asset used to fund the trust. Many donors consider this option if they are making a gift of real estate.
 

Example of an Annuity Trust:

Krista, aged 75, owns several stocks with a market value of $100,000, but they pay dividends of only $2,000 a year, or 2 percent of market value. She decides to transfer these securities to a charitable remainder annuity trust that will pay her $7,000 a year, increasing her gross income by $5,000.

If Krista sold her stocks instead, she would pay an enormous tax on her capital gain. Their cost basis is $30,000, compared to the current market value of $100,000, resulting in a gain of $70,000. At a federal capital gains tax rate of 15%, the tax would be $10,500. This would leave her with only $89,500 to reinvest, so she would have to find stocks that pay a dividend of more than 8 percent to receive the same $7,000 her trust can pay her.

Whether you are creating a will or updating an old document, Baton Rouge General Foundation recommends that you seek the advice of estate and tax professionals, such as attorneys, accountants, or financial advisors, in developing your estate plan. Baton Rouge General Foundation cannot render tax or legal advice. For more information of Charitable Remainder Trusts, please contact Baton Rouge General’s Foundation at Foundation@BRGeneral.org or (225) 763-4372.

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