A stable source of income
A charitable remainder annuity trust provides a way to avoid
fluctuations in interest rates and ensures that your client
or someone designated by your client receives a fixed income.
A donor may make a gift of cash, appreciated securities or
property to set up the trust either during her or his lifetime
or through a will.
This trust agreement locks in a long-term annuity rate and
designated beneficiaries receive regular annuity payments
for life, or joint lives, or for a term of up to 20 years.
The rate chosen depends on prevailing market conditions.
A gift to the community
Ultimately, the remainder in the trust becomes the property
of the Jewish community and is used to meet its most critical
needs, or to support an organization or cause your client
can specify.
Tax benefits
Should your client elect to use appreciated property to fund
the trust, he or she will avoid any initial income tax on
the capital gain. The contributed property is received by
the trust at its fair market value, and the annuity rate is
multiplied by this value to calculate the payments to the
income beneficiaries. In addition, your client will be entitled
to a current income tax charitable deduction based on the
present value of the anticipated remainder—which will
ultimately be paid to the Jewish community.
Example:
Your client decides to contribute stock worth $20,000, which
costs her $5,000, to a Charitable Remainder Annuity Trust.
The trust then disposes of the stock and reinvests the proceeds.
The trust is credited with the full value of the stock, and
neither she nor the trust is charged initially for payments
of income tax on the capital gain. The trust provides income
at a fixed rated of, for example, 7%, guaranteeing payments
of $1,400 per year ($20,000 x 7%).
At a glance:
- Provides a fixed lifetime annuity at a favorable rate
- Eliminates initial tax on capital gain for contributed
appreciated property
- Provides a current income tax charitable deduction
- Avoids estate taxes on contributed assets
- Enables a significant contribution to the Jewish community
More...
>>
Get a complete legal and tax overview of annuity trusts and
other deferred gifts in GiftLaw Pro under "Chapter 3—Deferred
Gifts"
>> Do a calculation
of the potential tax benefits of establishing a charitable
remainder annuity trust
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