Gift Planning

Charitable Remainder Annuity Trusts
(Complete gift description)

The charitable remainder annuity trust combines the flexibility of an individually managed trust with the stability of fixed regular income. Here's how it works:

• The annuity trust pays its beneficiaries a fixed percentage of the initial value of the assets that funded the trust.
• Income from your annuity trust can be paid to you and your other beneficiaries for lifetime, for a term of up to 20 years, or for a combination of both.
• When your annuity trust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be available for the use you designated when you created the trust.

What are the tax advantages of an annuity trust?

• First, no upfront capital gains tax is payable if you fund your annuity trust with appreciated property. So, you can contribute appreciated but low-yielding assets and put the entire value of your gift to work generating income for you.
• Besides avoiding capital gains tax, you also receive a charitable income tax deduction when you create an annuity trust. Your deduction will be based on the full fair market value of the assets you contributed, reduced by the present value of the income interest you retained.

Planning points

• Because they pay fixed income, annuity trusts cannot accept gifts of illiquid assets or pay out net-income only, as a unitrust can.
• Annuity trusts are well suited to accept gifts of long-term tax-free bonds, generate a tax deduction, and pass tax-exempt income through to you and your beneficiaries.

How do you create an annuity trust?

Setting up a charitable remainder annuity trust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we can provide you with an initial draft of the annuity trust agreement for review by you and your attorney. Once your trust agreement is signed, you can fund your annuity trust by transferring assets to your trustee.

For more information

Email us, complete the personal illustration form, or call us at (619) 744-3352 so that we can assist you through every step of the process.