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Minnewaska Home Development Foundation
Charitable Remainder Trusts
Trust Yourself To Make A Difference -
For Your Family And For Others!
"Trust" In A Brighter Future!
There is a special kind of trust – a charitable remainder trust – that can make a
tremendous difference to your life and to MHDF.
A charitable remainder trust is an agreement through which an individual irrevocably places cash,
securities or other property - but retains a specified lifetime. When the trust ends, the
property in the trust passes to the named beneficiary (for example, MHDF), much as if it were a
will bequest. Because this bequest is "accelerated" by means of the trust, tax law allows a
substantial income tax charitable deduction (tables illustrating charitable deduction amounts
follow later in this article). Depending on how the trust is created, there are many other
possible advantages:
- Increased family
- Avoidance of capital gains tax
- Favorable income taxation
- Income deferral (generally until retirement)
- Income diversion (to a family member in a low tax bracket)
- Savings on estate tax
- Avoidance of gift tax
- Professional management of the funds
- An inflation hedge
- Reduction in estate settlement costs
- Philanthropic support for MHDF.
The Annuity Trust and the Unitrust
Charitable remainder trusts come in two types: annuity trusts and unitrusts. Both trusts
provide for payments to be made to one or more individuals, either for life or a specified
period of years. Ultimately, the principal passing to the beneficiary.
The annuity trust is required to disburse (at least annually) a fixed dollar amount equal
to at least 5% of the value of the property placed in trust to the designated income beneficiary.
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Gift of $100,000 to Annuity Trust
For Life of Beneficiary (Fixed Payout) |
|
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Deduction if Beneficiary Receives:
|
|
Age of
Beneficiary |
$5,000
Annually |
$6,000
Annually |
$7,000
Annually
|
|
65 |
$50,346 |
$40,415 |
$30,485 |
|
70 |
56,563 |
47,875 |
39,188 |
|
75 |
63,022 |
55,627 |
48,231 |
|
80 |
69,671 |
63,606 |
57,540 |
|
85 |
75,998 |
71,198 |
66,398
|
Note: Deductions fluctuate with interest rate changes.
The Unitrust, in contrast, must make(at least annually) payments of a specific percentage
(minimum 5%) of the value of the property placed in trust. The payout will increase if the value
of the trust increases, but decreases are also possible.
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Gift of $100,000 to Unitrust for
Life of Beneficiary (Variable Payout)
|
|
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Deduction if Beneficiary Receives:
|
|
Age of
Beneficiary |
$5,000
Annually |
$6,000
Annually |
$7,000
Annually
|
|
65 |
$46,857 |
$41,006 |
$36,009 |
|
70 |
53,947 |
48,322 |
43,467 |
|
75 |
61,165 |
55,947 |
51,322 |
|
80 |
68,438 |
63,819 |
59,623 |
|
85 |
75,234 |
71,331 |
67,706
|
Note: Deductions fluctuate with interest rate changes.
Gifts Of Problem Solvers
Individuals who support MHDF expect their gifts will help us face future challenges. But more
sophisticated donors and their advisers often plan gifts in trust to also meet a wide range of
personal and financial needs.
- An executive limited in the amount permitted to be contributed to a 401(k) retirement plan
should establish a charitable remainder Unitrust (CRUT). The individual will be able to
supplement retirement savings, receive (at least) partial charitable deductions, and substantially
defer income until retirement. In addition, by funding the trust with appreciated securities, the
grantor will also avoid capital gains taxes that would be due if the stock were sold
- A grandparent can use a charitable remainder annuity trust (CRAT) to provide income to
grandchildren during their college years. In practice this plan amounts to a private scholarship
providing substantial college funds to the grandchildren plus charitable deductions for the
grandparent.
- A child of elderly parents can establish a charitable remainder trust that pays lifetime
income first to the parent and later to him or herself. The child will receive a substantial
income tax charitable deduction and the payments to the parent can be made from a tax-exempt
trust.
- A farmer nearing retirement may wish to sell his farm but stands to pay significant capital
gains taxes if he does. He can ecscape this unfavorable position by deeding the land to a
tax-exempt charitable remainder trust. The trustee will sell the property (avoiding all capital
gains taxes) and pay the farmer and his wife lifetime income. The farmer will receive a large
tax deduction, too.
- A retired couple wish to be relieved of the burdens of managing their investment portfolio.
Through a Unitrust funded with stocks and bonds, they now enjoy the services of an experienced
money manager (the trustee), who sends them trust payments quarterly.
For more information, please contact us.
Minnewaska Lutheran Home
(320) 239-2217
e-mail:
info@mlh-healthcare.org
The information provides is not intended as legal, tax, or investment advice. Please consult
an attorney, tax or financial planning professional for questions specific to your financial
situation.
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