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Planned Giving
Gifts of Stock | Charitable Bequest | Charitable Remainder Trust | Charitable Lead Trust | Gifts of Real Estate You may have an asset -- securities real estate or a sum of cash -- that you would like to give to the Red Feather Development Group, but for now you need the income it provides. One possibility, of course, is to leave it as a bequest after your death. But there is another way: with a charitable remainder trust, you can make your gift now and continue to receive income for life or a term of years. Perhaps you have an asset with a low return. You.d like to sell it and reinvest in something more productive, but you hesitate because taxes on the capital gain would take a big bite out of the proceeds. By transferring it to a charitable remainder trust, you.ll avoid tax on the gain and the full value of the asset will go to work for you and for Red Feather. The charitable remainder trust is a gift arrangement under which assets are transferred to a trustee designated by the donor(s). The trustee manages the assets and pays income to the donor(s) and/or other beneficiaries for their lifetimes or a term of years. When the trust terminates, the remaining principal is used to benefit Red Feather. If a trust is for the lifetime(s) of the beneficiaries, we recommend no more than two beneficiaries, each of whom is at least 50 years old. The amount of income paid to the income beneficiaries may be fixed for the life of the trust (.annuity trust.), or it may be a stipulated percentage of the trust assets as revalued annually (.unitrust.). The annuity trust offers the security of fixed payments, while the unitrust offers the possibility that payments may grow over time (if net total trust earnings exceed the stipulated payout rate.) Tax benefits When you establish a charitable remainder trust, you receive an income tax charitable deduction for the present value of the estimated remainder that will be available to support Red Feather when the trust terminates. This can result in significant tax savings over the period (up to five additional years beyond the gift year) during which you report the deduction on your tax returns. If the trust is set up under your will to be effective at your death, your estate would receive an estate tax deduction. For many donors, however, an even greater benefit is the avoidance of all tax on the capital gain when appreciated property is placed in a charitable remainder trust. This means that the entire asset can be reinvested to meet the trust's income and/or growth objectives. This maximizes both the trust payments and the eventual gift for the ultimate benefit of Red Feather. Consider an example Alan and Barbara Klein, 68 and 65, respectively, own undeveloped land worth $250,000, which they purchased years ago for $50,000. If they were to sell the land and reinvest the proceeds, tax on the $200,000 gain would consume $40,000, leaving only $210,000 to reinvest. Instead, they contribute the land to a charitable remainder unitrust with a payout rate of 6 percent for their lifetimes. They receive an income tax charitable deduction of $82,258, which, in their 31 percent tax bracket, can mean savings of $25,500. The amount of the charitable deduction depends on the ages of the beneficiary(ies), the trust payout rate, and the IRS discount rate in effect at the time. The trustee sells the land and reinvests the proceeds, achieving an average net total return of 8.5 percent. The first full year of the trust, Mr. and Mrs. Klein receive payments of $15,000 (6 percent of $250,000). However, because the trust principal is growing by 2.5 percent (8.5 percent return less 6 percent payout), their payment will also increase over time. When the trust terminates, Red Feather will have use of the principal to fund ongoing support for our program. Tailoring the trust to your needs Charitable remainder trusts are flexible arrangements that can be deigned to meet various objectives. Here are just a few of the applications. Increase current cash flow. Either an annuity trust or a unitrust is an excellent vehicle for making a low- or non-income-producing appreciated asset more productive for you. The trustee can sell the asset you contribute and purchase securities that generate more dividends or interest without the trust being taxed on the capital gain. Provide supplemental retirement income. If you are still working and have adequate income now but want to supplement your future income, a unitrust can be designed to pay out little or no income until you decide to retire. Meanwhile, the trust principal will grow on a tax-sheltered basis. Provide for other family members. Perhaps you have adult children who are not prudent in managing money, disabled child who will require ongoing support, or a parent or sibling who needs assistance. A charitable remainder trust is a wonderful way to provide a stream of income in all of these situations.and reduce your taxes in the process. Preserve the children's legacy. For those who hesitate to make a major gift because they don.t want to diminish their children's legacy, a charitable remainder trust combined with a life insurance trust could be the answer. Often the extra cash flow generated by the charitable remainder trust will be sufficient for the premiums on the insurance policy, and the insurance trust can designed so that the proceeds pass estate-tax free to the children. Choosing a trustee As a donor, you have the option to name a trust institution or an individual as trustee. If you establish the trust while you are alive, you yourself may even serve as trustee, which could be appealing if you want to retain investment control. The Charitable Remainder Trust -- For many donors, it can be the ideal way to make a major gift to Red Feather and fulfill personal financial objectives at the same time. To see if it's right for you, be sure to seek the guidance of your personal financial and legal advisors. This information does not constitute legal or financial advice and should not be relied upon as a substitute for professional advice. Red Feather Development Group encourages you to seek professional legal, estate planning and financial advice before deciding on a course of action.
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