Pays You Income

Charitable Remainder Trust

With a charitable remainder trust, you or other named individuals can receive income each year for life or a period not exceeding 20 years from assets you give to the trust you create. Payments can be either variable or a fixed amount. After the life of the named individuals or the set period of years, the balance in the trust goes to the charities of your choice.

Your Possible Benefits

  • A partial charitable income tax deduction
  • Potential for increased income
  • Up-front capital gains tax avoidance
  • Professional management of trust assets available

Ways to Fund Your Charitable Trust

A charitable remainder trust can be funded with a variety of assets. While some assets are easier to give to your charitable trust, you’ll want to consider other important issues such as asset availability and capital gains tax savings. Here’s a rundown of three popular possibilities and their effects.

  1. Cash. Writing a check is the least complicated way to fund the trust. The trustee can then invest the cash in a diversified portfolio of securities.
  2. Stock. Stock that is currently worth more than you paid for it and that you’ve owned for more than one year is an ideal funding choice. This stock is an especially attractive choice if it now produces only a modest income. Contributing low-yield stock can immediately boost your cash flow by means of a higher payout from the trust. You escape up-front tax on the stock’s capital gain and receive a substantial income tax charitable deduction. Plus, these assets are easily transferred to the trust.
  3. Real estate. You can contribute any type of appreciated real estate you’ve owned for more than one year, provided it’s unmortgaged, and realize benefits similar to those for a stock gift. The donated property may be a residence (a personal residence must be vacant upon contribution), undeveloped land, a farm or commercial property. Real estate works well with only certain variations of charitable remainder trusts (i.e., a flip unitrust). Your estate planning attorney who will draft your trust can give you more details.

Choosing Your Trustee

A trustee oversees the assets you place in a trust and administers the trust for the beneficiaries. Your trustee will:

  • Make trust payments to you
  • Invest the assets prudently
  • Complete the necessary tax returns
  • Notify you how much of your payments are taxable

You may decide to serve as your own trustee or name a professional advisor as your trustee. You can also choose a professional trustee, such as a bank or trust company. Many people name a professional as a co-trustee along with a family member. You will want to decide which traits are important to you.

How to Complete Your Gift

  1. Decide which assets you’d like to put into the trust. Donating appreciated, low-yield stock or real estate you’ve owned longer than one year is typically more advantageous than giving cash. You may boost your cash flow by means of a higher payout from the trust. And you’ll escape up-front tax on the asset’s capital gain.
  2. Determine who you want to receive the payments and how much
  3. The rate you select must be at least 5 percent. Usually, the rate selected is 5 percent to 7 percent. Also consider whether you want someone else to receive payments, too.
  4. Consider how long you’d like the payments to last
  5. Would you like to receive payments for your lifetime (or the lifetime of another beneficiary) or for a fixed number of years, up to 20?
  6. Decide which type of charitable remainder trust will work best for you

You can choose to receive payments that vary from year to year (unitrust) or steady payments (annuity trust). Choosing a unitrust allows you to make gifts of additional assets into your unitrust at any time in the future.

Please let us know if you include Salem Art Association in your trust so we can thank you for your generosity and support of our mission.

For more information, please contact Debbie Leahy, Director of Development, at 503-581-2228 x314 or debbie@SalemArt.org.

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