Charitable Giving Techniques

Charitable Remainder Trust
Advantages:

• Allows the donor to provide a gift to charity (i.e., the remainder interest) while reserving an income stream personally or for any other non-charitable beneficiary.
• Creates a current charitable income tax deduction for the value of the remainder interest passing to charity at the end of the trust's term.
• In most situations, the property is not subject to tax in the donor's estate.
• Trustee assumes fiduciary duties over the contributed property.

How It Works:

• Donor executes an irrevocable charitable remainder trust (CRT) document. In it, the grantor retains or transfers the right to at least annual payments from the CRT for a specified term of years or for life or lives of the income beneficiary(ies).
• The trust can either be an annuity trust or a unitrust. An annuity trust pays a fixed amount, either a dollar amount or a fixed percentage (not less than 5%, not more than 50%) of the initial fair market value of the CRTassets. A unitrust pays a fixed percentage (not less than 5%, not more than 50%) of the CRT assets valued annually.Either type of CRT must make payments at least annually, and at least one income beneficiary must not be a charity.
• Additional contributions may be made to a unitrust, but not to an annuity trust.
• Prior to being paid out, the donor may reserve the right to change the charitable beneficiary of the remaining trust assets (i.e., the remainder). At the expiration of the term of the trust or the death of the income beneficiary, the remainder must be paid to the charity designated in the CRT document.

Charitable Lead Trust
Advantages:

• Allows the donor to provide a gift to charity (i.e., the lead or income interest) while reserving the remainder interest personally or for any other non-charitable beneficiary.
• In some situations, creates a current charitable income tax deduction.
• May be an effective way to reduce the donor's estate.
• May be an effective way to preserve the contributed asset for future generations.

How It Works:

• Donor executes an irrevocable charitable lead trust (CLT) document which requires that a specified income be paid to the designated charity for a specified term.
• The trust can either be an annuity trust or a unitrust (see description above).
• The payment period may be for a specific term of years or for the life or lives of an individual or individuals who are living and are known on the date of the transfer.
• No payments may be made to any non-charitable beneficiary while the charity is entitled to payments.
• Additional contributions may be made to a unitrust, but not to an annuity trust.
• At the expiration of the payment period, the remainder interest is either paid to the donor or given to a specific non-charitable remainderman.

Charitable Gift Annuity
Advantages:

• Allows the donor to provide a gift to charity (i.e., complete ownership of the property) in exchange for a lifetime annuity.
• Creates a current charitable income tax deduction for the value of the gift less the present value of the annuity payments.
• The contributed property is not included in the donor's gross estate.
• Donor is guaranteed a specified annual income for life.
• Gift qualifies for the gift tax annual exclusion.
• Simple way for the donor to make a gift to charity yet receive a lifetime income.

How It Works:

• Charity executes an annuity agreement promising to pay the donor (or other designated person) an annuity for life in exchange for a gift of cash or property.
• Donor transfers the cash or property (generally appreciated) to the chosen charity.
• The amount of each annuity payment depends upon the value of the property transferred and the annuity rate.
• Generally, the value of the charity's promise to pay is actually less in value than the cash or property donated.

This information must not be used for legal or tax advice. Visitors to this web site must consult with their own legal or tax advisor for specific tax advice. This information is excerpted from Northwestern Mutual's Advanced Planning Library web site.