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Remainder
Trust
This is a popular type of life payment plan where, like our Pooled Income
Fund, you can make a substantial gift to the Foundation while obtaining
significant current tax benefits, and yet you can still receive life
income payments related to your contribution. Charitable remainder trusts
come in different varieties. Generally, income payments may be made
quarterly, annually or for intervals up to 20 years. Charitable tax
deductions depend upon the value of the assets donated, the payout rate,
the ages and number of beneficiaries, and the term of the payments.
Charitable Remainder Unitrust
A distinguishing feature of a unitrust is that the amount paid to
the beneficiary or beneficiaries each year can vary. The payment must
equal a fixed percentage of the fair-market value of the trust assets
as they are valued annually. The donor sets the fixed percentage when
establishing the charitable remainder unitrust in consultation with
his or her financial advisors, the trustee (a bank or financial institution)
and their lawyer who draws up the papers to create the unitrust. Annual
payments must be at least 5% of the trust assets value. Depending
on the contributor’s preferences and estate-planning needs,
he or she may maximize their annual return (by choosing a higher percentage)
or their charitable deduction (by selecting a lower rate of return).
Having the payments vary with the value of the assets can provide
a hedge against inflation.
Charitable
Remainder Annuity Trust
The principal difference relative to the remainder unitrust is in the
way that the income payments to beneficiaries are calculated. Instead
of income payments whose amounts may vary, the annuity provides a fixed
payout of not less than 5% of the initial fair-market value of the charitable
contribution in trust.
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