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Charitable Trusts

You can create a charitable remainder trust by irrevocably transferring an asset (cash, appreciated securities, appreciated real estate, or tangible personal property) to a trustee such as the Christian Church Foundation. The trust can be for the lives of one or two persons or can be for a specific term of years. The trust can pay income in a variety of ways:

• to you only;
• to any other person only;
• to any two persons; and
• to more than two persons (such as children) if the trust is for a specific number of years.

At the death of the last beneficiary, or at the end of the term of years, the remainder will go to your congregation or any ministry of the church you name. The remainder can also be used to establish a permanent endowment with the Christian Church Foundation. The annual payments from such an endowment can be sent to your congregation or any part of the church you choose.

Tax considerations are also important. You will receive a charitable deduction for income tax for a portion of the trust value. The amount of the deduction varies depending on the payout percentage, the amount placed in the trust and the ages of the beneficiaries or the number of years of the trust. If you use long-term appreciated securities to fund the trust, you have the additional benefit of avoiding the capital gains tax on the appreciation in those securities. The same is true for appreciated real estate. The assets transferred into the trust are removed from your estate and are not subject to federal or state estate tax or probate costs.

The possible benefits of such a life income agreement are:

• satisfaction of having made a planned gift to your church;
• security of income for yourself and/or others;
• potential hedge against inflation (with a unitrust);
• income tax savings;
• capital gains tax savings;
• estate tax savings; and
• probate cost savings.

There are two forms of charitable remainder trusts - charitable remainder unitrust and charitable remainder annuity trust.

Charitable Remainder Unitrust

The payment to the beneficiary is based on a fixed percentage of the fair market value of the trust assets valued each year. The minimum percentage allowed by law is 5 percent and most trusts are established between 5 percent and 7 percent.

Payment will vary each year. The payout percentage does not change but the value of the trust does change, since it must be revalued each year. Payment each year may be ordinary income, capital-gain income, tax-exempt income or tax-free income, depending on the particular circumstances of the unitrust.

You can create a charitable remainder unitrust during your lifetime or at death through your will. The minimum amount necessary for such a trust with the Christian Church Foundation is $50,000.

An example of a Charitable Remainder Unitrust

Mr. Robinson, age 65, establishes a $100,000 single-life unitrust with a 6 percent annual payout. He funds the unitrust with appreciated securities that had a basis of $40,000 and were paying 4 percent.

The capital gains tax on the gain of $60,000 would be avoided and the trust would be established for $100,000. He would receive a charitable deduction of $43,001 for income tax purposes.

In a standard unitrust, Mr. Robinson will receive $6,000 annually in quarterly payments ($100,000 x 6 percent). If the trust earned a net total return of 7 percent ($7,000), the additional $1,000 in earnings would be added to the corpus to make the value of the trust the second year $101,000. Mr. Robinson's payout the second year would be $6,060 ($101,000 x 6 percent).

Charitable Remainder Annuity Trust

The annual payment is based on a fixed percentage of the fair market value of the trust assets at the time the trust is created. The minimum percentage allowed by law is 5 percent and most trusts are established between 5 percent and 7 percent.

The payment from an annuity trust will be the same each year. Payment may be ordinary income, capital-gain income, tax-exempt income or tax-free income, depending on the particular circumstances of the unitrust.

You can create a charitable remainder annuity trust during your lifetime or at death through your will. The minimum amount necessary for such a trust with the Christian Church Foundation is $30,000.

An example of a Charitable Remainder Annuity Trust

Mr. and Mrs. Back, ages 72 and 70, transfer appreciated long-term securities valued at $100,000 to the Christian Church Foundation to establish a charitable remainder annuity trust. Their cost basis in the stock was $30,000. They want a 7 percent payout.

They will receive $7,000 each year ($100,000 x 7 percent). They will also receive a charitable deduction for their income tax of $35,889 and avoid all the capital gains tax on the $70,000 of long-term gain.

At the death of the last survivor, the remainder of the trust will go to the causes of the church they have designated. For example, the remainder could establish a permanent fund with the Christian Church Foundation, the income from which could be sent to their congregation undesignated, or designated for the specific causes they want to name.

The Christian Church Foundation does not render legal, tax or other professional advisory services. Advice from an attorney and other professional advisors should be sought when considering charitable giving.