A charitable remainder annuity trust (CRAT) is a popular type of life-income plan. Cash and securities are typical assets transferred into the trust. The trustee manages the trust assets and pays you or others you choose a fixed income for life or for a term of years. When the trust terminates, the remaining assets in the trust are transferred to the Church or one of its institutions.
The typical donor:
Needs income for life or a specified term of years.
Desires a fixed income based on the original value of assets transferred.
Does not plan to make additional gifts to the trust in the future.
Is between the ages of 55 and 80.
Gift features and benefits:
Income for life (fixed payments)
Charitable income tax deduction
Possibility of multiple beneficiaries
Assets transferred to the trust can be reinvested
Ability to choose the trustee (may be the donor)
Investment of assets is designed to balance annuity payments with preservation of principal
How Do I Make a Gift Using a Charitable Remainder Annuity Trust?
A trust document tailored to your needs is drafted. Your assets are transferred to the trustee you choose. The assets are usually sold by the trustee and reinvested to provide the annuity and preserve principal. You receive fixed income for your life or a specified period of years. At your death or the end of the period, the remaining assets are transferred to the charity of your choice.
Before you begin, you need to make sure your financial and legal advisors are part of your gift strategy team. A charitable remainder annuity trust can have an impact on other parts of your financial and estate plan. The professional staff at Philanthropies can assist you and your advisors in the creation of trust documents.
Other Facts You Should Know about a Charitable Remainder Annuity Trust
The income tax deduction you receive from a charitable remainder annuity trust is based on an Internal Revenue Service (IRS) formula that considers the ages of the donors and income beneficiaries, the payout of the trust, and an IRS index rate known as the Applicable Federal Rate (AFR). The older you are, the larger your income tax deduction. Generally, if the trust is for a term of years rather than for life, the income tax deduction will be larger. If the present value of the remainder interest equals at least 10 percent of the value of assets transferred into the trust, the trust will qualify as a charitable remainder annuity trust. Also, a federally imposed 5 percent probability test determines the viability of the trust assets supporting the annuity payments. To qualify, the trust provision must meet the following:
Choosing a trustee.
Designating the income beneficiaries.
Naming the charitable remainder beneficiaries.
Deciding on a payout rate for the trust.
Determining the frequency of the payments.
Selecting the term of the trust.
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