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Charitable Remainder Annuity Trust

Complete Gift Description

If you are seeking a way to make a charitable gift while retaining a fixed income for you, your spouse, family members, or other individuals, you’ve reached the right page. The charitable remainder annuity trust is an individually managed trust that combines a charitable gift with regular, predictable income, along with some flexibility in management and investment. In general, here’s how it works:

  • The annuity trust pays its beneficiaries a fixed-dollar income or 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.

This sounds ideal for me. Are there tax advantages of this gift, too?

  • 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 higher 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.

I’ve heard about a charitable remainder unitrust. Is there a difference?

Yes, the charitable remainder unitrust pays out a fixed percentage of the trust’s assets, as revalued each year. As a result, your income will fluctuate with the performance of the trust. For this reason, charitable annuity trusts can't accept gifts of illiquid assets, invest solely for growth, or pay out net income only. The charitable income tax deduction for an annuity trust is usually higher than that for a unitrust, because the unitrust is likely to pay out more income to the beneficiaries over time. Click here for more information about the charitable remainder unitrust.

Planning tips — consider these ideas to benefit yourself and the MU Foundation

  • Retirement Planning: Increase your retirement income by contributing low-yielding securities to a charitable annuity trust. The trust will sell the securities and reinvest the total amount, paying you a minimum of 5% of the trust’s original value annually.
  • Education Trust: Create a trust for a term of years, using the income to fund a loved one’s education. At the end of the term, the remainder passes to the MU Foundation to use where you have designated.
  • Special Needs Trust: It is now possible for a charitable annuity trust to pay its income to a separate vehicle set aside to meet the needs of a loved with a qualified disability.
  • Parents’ Trust: If you’re providing annual income to parents, consider establishing a trust that pays income to them; you receive a charitable deduction at the time of funding and the satisfaction of helping both the MU Foundation and your family.

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.