The charitable remainder trust is similar to other types of trusts except that the amount distributed at its termination (the remainder) is paid to a charitable beneficiary. A donor transfers property irrevocably to a trust and specifies the amount of payments to be distributed, to whom the payments are to be paid, the duration of the payments (a period of years or the lifetime of the beneficiaries), and the charity that will receive the remainder. This plan allows outright transfers during the donor’s lifetime or through the donor’s will.
To qualify for the charitable deductions available under federal tax law, the plan must conform to the requirements of a charitable remainder unitrust or a charitable remainder annuity trust. Each of these arrangements offers independent features that can be used effectively to achieve financial and estate planning objectives. Funding a charitable remainder trust with appreciated, long-term, capital-gain securities can increase the available tax benefits because the grantor can avoid the potential capital-gain tax that would result from an outright sale of the property. Avoidance of the capital-gain tax, coupled with a current charitable income-tax deduction, can substantially reduce the cost of such a transfer.
To see how a charitable remainder trust would work for you, visit the gift calculator website.
The primary feature of the unitrust is that it provides for payment to the beneficiary an amount that may vary over time. The payment must equal a fixed percentage of the net fair-market value of the trust assets, as valued annually. The grantor determines the fixed percentage upon creation of the unitrust; it must be at least 5 percent. Depending on the donor’s financial-planning objectives, a choice may be made to emphasize the charitable deduction (by choosing a lower rate) or the annual return (by selecting a higher rate). The unitrust payment must be made at least annually to the current beneficiary, but may be made at more frequent intervals, such as semi-annually or quarterly.
The unitrust may be set up for the lives of the beneficiaries or for a term of years, not exceeding 20. The amount paid to beneficiaries each year is determined by multiplying the payout rate by the value of the trust assets. For example, a 6 percent unitrust valued at $100,000 its first year will pay out $6,000. If the trust assets are valued at $110,000 in its second year, the payout will be $6,600. The variable nature of the unitrust payments may provide a hedge against inflation — assuming a growth in value of the trust assets comparable to the inflation rate.
The grantor is allowed a charitable deduction equal to the present value of the Marianists’ remainder interest in the unitrust, as determined by reference to U.S. Treasury regulations. The deduction, a percentage of the amount that funds the trust, is based on the fair-market value of the asset transferred, the payout rate chosen, and either the age and number of beneficiaries or the term of years. The unitrust can be funded with cash or, ideally, with long-term, highly appreciated, capital-gain securities or real estate. The governing instrument of any unitrust may include a provision to permit additional contributions. The attraction of this feature is that the grantor need not establish a new trust each time he or she wishes to make an additional gift.
The annuity trust shares many common features with the unitrust, the principal difference being the manner of calculating the payment to the beneficiary. Whereas the unitrust provides for a payout that may vary, the annuity trust provides for a fixed payout. This amount must equal a sum certain of not less than 5 percent of the initial fair-market value of the gift in trust.
Another difference is that an annuity trust cannot permit additional contributions. A deduction for the present value of the charitable remainder interest and avoidance of capital-gain tax on the transfer of appreciated, long-term, capital-gain property are among the benefits available to the grantor of the annuity trust.
The fixed-payout feature of the annuity trust may make it particularly suitable to meet the financial needs of an older beneficiary. Income-producing securities or cash are most suitable for funding an annuity trust.
MARIANISTS AS TRUSTEE
The Marianists act as trustee for a number of charitable remainder unitrusts and annuity trusts in which the Marianists are the ultimate charitable beneficiary. We do not charge for serving in this capacity. The trusts are typically managed as part of our investment pool (in conjunction with our endowment fund) by a group of investment managers who are evaluated annually.
The Marianists ask that you contribute a minimum of $100,000 in order to establish a charitable remainder trust for which the Marianists serve as trustee.
Request our free booklet, “Planning Your Legacy, a Guide to Planning Your Will and Trust” by contacting Brother Jim Brown, legacy giving administrator, or Carol Gauder, legacy giving assistant, Monday through Friday, 9 a.m. to 4 p.m (Eastern Time), 937-222-4641. Or call toll free, M-F, between the hours of 9 a.m. and 3 p.m. (Eastern Time), 1-800-348-4732.