Receive income from making a planned gift today, and provide for AJC in the future.
The charitable remainder trust is a way to make a gift to AJC, and at the same time enjoy income and tax benefits.
You can gift cash or appreciated securities to AJC to establish a charitable remainder trust, and designate yourself and/or your spouse or another loved one to receive income for life. There are two forms of charitable remainder trusts: the charitable remainder annuity trust and the charitable remainder unitrust.
With a charitable remainder annuity trust, you can receive a fixed amount of income payments for your lifetime. The amount you and/or your designated income beneficiary receive is set when the trust is created. You can choose to receive a fixed percentage or a dollar amount of the initial fair market value of the trust assets.
With a charitable remainder unitrust you can receive a fixed percentage of the fair market value of the trust's assets, valued annually. Since the value of the trust will vary annually, your income payments will fluctuate from year to year.
The IRS requires that for both types of charitable remainder trusts, 5% is the minimum percentage rate of payments you and/or your designated income beneficiary may receive. For example, you can receive 5% of the initial fair market value for your charitable remainder annuity trust, or 5% of the trust assets, valued annually, for your charitable remainder unitrust.
Advantages of a Charitable Remainder Trust
When you establish either form of charitable remainder trust with AJC, you are entitled to an immediate charitable income-tax deduction for a portion of your gift. The amount of your deduction is based on various factors, such as the age(s) of the designated income beneficiaries and actuarial tables, the rate of return of the income payments, and the Internal Revenue Service (IRS) federal interest rate for the month when the gift is made.
In accordance with accounting principles, you can apply this charitable income-tax deduction against your adjusted gross income for the tax year in which you established the trust, and any unused portion can be carried forward for five years. Your tax advisor can counsel you about the use of this charitable tax deduction. If you fund the trust with cash, you can apply the charitable tax deduction against 50% of your adjusted gross income, and if you use securities or property to fund the trust, you can apply the charitable tax deductions against 30% of your adjusted gross income.
Just as there’s a benefit to making an outright contribution to AJC with a gift of long-term appreciated securities, funding a charitable remainder trust with long-term appreciated securities enables you to avoid paying the capital gains tax on those appreciated securities, if you sell them. You may consider funding the charitable trust with stock that yields little or no dividends, and maximize your income benefits.
Many individuals establish charitable remainder trusts to provide them and their spouse with supplemental retirement income.
One unique benefit of establishing a charitable remainder unitrust is that you can make additional gifts to the trust at any time as your circumstances allow, increase your income, and be eligible for an additional charitable tax deduction. You cannot make additional contributions to a charitable remainder annuity trust because the rate of return of the income you receive is fixed, based on the initial value of the gift you made to establish the trust.
The charitable remainder trust can be used as an estate-planning strategy for you and your spouse. You can establish a charitable remainder trust during your lifetime, and/or you can also establish a testamentary charitable remainder trust under your joint and reciprocal estate plans. After the passing of one spouse, the trust is established under his/her will and/or revocable living trust, for the benefit of the surviving spouse. With a charitable remainder trust, you can ensure that your spouse will receive income payments for life, and at the same time reduce the taxable estate to benefit your heirs.
