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Charitable Remainder Trusts

Charitable remainder trusts enable you to get the satisfaction of making a lifetime gift without the sacrifice. Here’s how they work:

You transfer assets to a trust that pays you (and another, such as a spouse, child or friend, if you wish) income for life. Then, the assets belong to the Hospital. As the beneficiary, you’ll receive payments based on a fixed percentage of the value of the trust assets as revalued each year. You choose the percentage when you fund the trust. Thus, the trust serves as a hedge against inflation. As the value of the trust assets increases, you payments increase as well. Of course, your payments decrease if the value of the trust assets goes down.

Example: Bonnie’s trust provides that she is to receive 5% of the fair market value of her trust’s assets each year. Bonnie funds her trust with $100,000 cash, so she receives $5,000 the first year ($100,000 x 5%). One year later, the trust assets are worth $120,000 so Bonnie receives $6,000 for the upcoming year ($120,000 x 5%). If the trust assets are worth $110,000 at the beginning of the next year, Bonnie will receive $5,500 ($110,000 x 5%). And so on, each year.

It may be possible to fund a trust and receive a fixed dollar amount annually. Unlike the trust described above, there’s no annual valuation or variation in the amount of the payment.

Regardless of which type of trust you use, you save taxes now because you get an income tax charitable deduction on your tax return for the year you fund the trust. The deduction depends on the type of trust, your age (and that of any other beneficiaries), the percentage to be paid, the amount placed in the trust and on official IRS tables that change each month. The older the income beneficiary, the larger the income tax charitable deduction. The higher the percentage payment, the smaller the income tax charitable deduction.

In the above example, if Bonnie were 72 years old, she would be entitled to an income tax charitable deduction of $55,361. (According to IRS regulations, Bonnie’s income tax charitable deduction will vary slightly depending on the month she funds the trust.)

In addition, there is no capital gains tax liability when you fund a charitable remainder trust with appreciated assets you’ve owned for more than one year. Depending on investments, part of your payment is favorably taxed as capital gains (which can be offset by any capital losses you may have from other investments). Sometimes, part of your payment is tax-free. You get the same estate tax savings as for charitable gifts made in your will while reducing probate costs.

If you own property that generates little or no income and has gone up in value, a charitable remainder trust can be a great way to increase your income for life without incurring capital gains tax.

For more information on how charitable remainder trusts can help you make a tax-deductible gift to the Hospital, please call (203) 852-2933 or plannedgiving@wchn.org. There is no cost or obligation to you.

Bequests, Annuities and Trusts