|
 |
Charitable Remainder Trust: Payments for Life or Term of Years
Charitable remainder trusts (CRTs) are an ideal form of philanthropy for those who wish to make a charitable gift to the University and receive income for their lifetimes and/or the lifetimes of others.
Charitable Remainder Trust Basics
- A CRT is an irrevocable gift to the University of Virginia.
- A CRT is a legal document executed by you and the University of Virginia.
- You may fund a CRT with cash, securities or real estate.
- The minimum funding level is $50,000 if U.Va. is to serve as trustee.
- You may choose to receive annual income of between 5% and 7% of the value of the trust (the trust payout rate).
- The trust may pay income for the lifetime of each beneficiary, or for a predetermined time period up to twenty years.
- You may claim a charitable income tax deduction in the year you make the gift for a portion of the trust's value.
- You may also bypass capital gains tax.
- You may make additional gifts to a charitable remainder unitrust. Trust additions may increase your tax benefits and are an excellent way to increase the income you receive.
- PLEASE NOTE: You may not make additions to a charitable remainder annuity trust.
Types of CRTs
Unitrust - A standard unitrust can provide a hedge against inflation. Each year, the trust is revalued and your income payments for that year are determined based on the new trust value. Trust value reflects investment performance, and as the trust grows, so does your income.
Net Income Unitrust - This trust pays the beneficiaries the lesser of the percentage payout rate and the income actually generated within the trust. A net income trust is particularly useful when funded with an illiquid asset such as real estate.
Flip Unitrust - A flip unitrust combines the benefits of a net income unitrust with those of a standard unitrust. The trust functions like a net income trust until the funding asset (real estate or another asset) is sold by the trustee or until a date you choose (for example, retirement). The trust then "flips" to a straight unitrust, and the beneficiaries begin receiving payments based on the percent payout rate that was selected when the trust was created.
Annuity Trust - This trust will pay the same fixed amount for the entire trust term - between 5% and 7% of the trust's funding value - regardless of the changing value of the trust assets.
How do CRTs work?
Charitable Remainder Unitrust
Mr. Nelson, age 60, has watched his stock portfolio fluctuate over the past 40 years. He is interested in making a $100,000 gift to the University to fund a scholarship, but is concerned that he might need these assets during retirement. Mr. Nelson decides to fund a $100,000 charitable remainder unitrust using some of his appreciated stock. He will receive 5% of the trust's value annually - $5,000 in the first year - thus adding to his retirement income. Mr. Nelson is also able to take a $40,000 charitable deduction for funding the trust. Any growth in the trust above the 5% paid out in income to him will remain in the trust. The trust will be revalued at the beginning of each year and Mr. Nelson's income payments for that year will be based on the new trust value. As the value of Mr. Nelson's trust grows, so will his income.
See Nelson Example
Flip Unitrust
Mr. and Mrs. Baker, both in their 70s, purchased their beach house in the 1970s for $75,000. Although, they have spent many wonderful summers with their son on the property and have supplemented their family income by renting it to others, the beach house has now become a burden. The Bakers decide to place the beach house in a flip unitrust that will benefit themselves and their son. The property is appraised and sold the same year for $350,000. Until the property is sold, the Bakers will receive only the income produced by the property. After it has flipped, they, and then their son, will receive 5% of the trust value annually. After their son dies, the University of Virginia will receive those assets remaining in the trust.
See Mr. and Mrs. Baker Example
Use our Gift Calculator to see how a charitable remainder trust can work for you.
Let us thank you. Notify the University of your charitable remainder trust and join the Cornerstone Society.
The University of Virginia does not provide legal, tax or financial advice. We strongly recommend that you consult professional advisors on all legal, tax or financial matters, including gift planning considerations. To ensure compliance with certain IRS requirements, we disclose to you that this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties.
|
|
|
