Looking for a way to give your chapter a significant gift? If you have built up a sizeable estate and are also looking for ways to receive reliable payments, you may want to check out the advantages of setting up a charitable remainder trust.
The annuity trust pays you, each year, the same dollar amount you choose at the start. Your payments stay the same, regardless of fluctuations in trust investments.
How Does It Work?
You can establish a charitable remainder annuity trust by irrevocably transferring assets to a trustee, who then makes fixed annual payments to you and/or other beneficiaries. At the end of the trust term, the assets remaining in the trust are distributed to the chapter for the purpose you designate. The chapter serves as trustee of many charitable remainder annuity trusts.
When you establish a charitable remainder annuity trust, you and the trustee agree to the amount of the annual payment to you and/or other beneficiaries. The amount of the annual payment must be at least 5% of the trust assets’ initial fair market value and is generally taxable to the beneficiaries.
This type of trust may appeal to older beneficiaries who appreciate knowing exactly how much they will receive each year and are not as concerned about the effects of inflation over time.
Benefits
- Receive fixed annual payments
- Pay no immediate capital gains tax on the transfer of appreciated assets
- Federal, and possible state, income tax charitable deduction
- Reduce or eliminate estate taxes
- Make a gift to the chapter
Assets Used
Usually cash or appreciated securities.
Advisor
People considering a planned gift should consult their own legal and tax advisors.
EXAMPLE
Jane Doe, age 80, owns securities worth $300,000, which she bought many years ago for $20,000. These assets pay cash dividends of $6,000 (2%). Miss Doe is in the 35% income tax bracket and the 15% bracket for capital gains taxes. She would like a higher return on her securities, but if she sells the stock, then she would owe $42,000 in capital gains tax.
By transferring her shares to a charitable remainder annuity trust with a 6% payout, she increases her current income to $18,000 and avoids paying any immediate federal capital gains tax, even if the chapter decides to sell the securities now or in the future. In addition, she receives a charitable income tax deduction of approximately $160,000 (based on an IRS discount rate of 1.2%).
Learn how you can support your chapter by contacting Matt Noble of Fraternity Management Group at matt.noble@fmgtucson.com.