Charitable Remainder Trusts provide life income for a minimum gift of $50,000. In return for the irrevocable transfer of cash or property to a trustee such as the Agrace HospiceCare Foundation, you receive a certain percentage or amount of the annual income from the property to you and/or another named beneficiary(ies) for life or for a specified term, not to exceed 20 years. The remainder interest in the property then passes to the Agrace HospiceCare Foundation, for the benefit of Agrace HospiceCare. There are two types of charitable remainder trusts.
• The charitable remainder annuity trust pays a fixed, guaranteed dollar amount, regardless of the trust’s investment performance. The income rate is determined at the time the trust is funded.
• A charitable remainder unitrust pays the donor a predetermined percentage of the fair market value of the trust’s assets, which are revalued annually. If the trust’s assets increase, the donor receives a larger payment, providing a hedge against inflation. Additional contributions may be made to a unitrust.
Charitable remainder trusts offer several advantages:
• You are entitled to a federal income tax deduction for the value of that charitable remainder interest, based on the number and ages of the beneficiaries and the percentage of payout you and the trustee agree upon.
• If you fund the trust with appreciated property, you recognize no capital gain on the appreciation, and the trust is funded with the full fair-market value of the gifted asset.
• You may designate anyone alive at the time of creation of the trust, including yourself and your spouse, as income beneficiary(ies).
• The trust itself is not taxed.
• The burden of investment and management decisions regarding the body of the trust is removed.
• If the trust is funded with cash or tax-exempt securities, the trustee can purchase or retain such securities to produce tax-exempt income for yourself and/or other beneficiaries.
• The asset is essentially removed from your estate, which may mean additional tax benefits.
• You can establish an endowed fund at Agrace through the trust.
Charitable Lead Trusts
A charitable lead trust is the opposite of a charitable remainder trust. Lead trusts are so named because the “lead” income—either a percentage or a specified amount—is paid first to Agrace. The donor designates the number of years (either a lifetime or a term not to exceed 20 years) during which Agrace receives income from the trust. Unlike a charitable remainder trust, which is a tax-exempt trust, a lead trust pays income tax on its income and capital gains.
At the end of its designated term, a donor lead trust returns the remainder of the trust to the donor. The trust must take the form of either an annuity or a unitrust.
The donor lead trust has two clear tax advantages:
• You are eligible for a charitable income tax deduction.
• If the trust is funded with tax-free bonds, the donor may claim a charitable income tax deduction and, because of the tax-free returns, is not taxed on the income.
At the end of its designated term, a non-donor lead trust returns the remainder of the trust to someone other than the donor such as the donor’s beneficiary. The donor does not receive a charitable income tax deduction, but there are advantages that make a non-donor lead trust an attractive option.
• You receive estate or gift tax benefits, depending on how the trust is established. If it is an inter vivos trust (established during life), the donor obtains a gift tax charitable deduction. If the trust is a testamentary trust (established upon the death of the donor), the estate obtains an estate tax charitable deduction.
• You can transfer assets to your children at reduced federal estate or gift tax rates.
• You can take advantage of generation-skipping provisions to pass a considerable amount of property to grandchildren while substantially reducing taxes and benefiting Agrace.