Charitable Trusts

Gifts that provide the donor with income

Charitable Remainder Trusts

Charitable remainder trusts (CRTs), like charitable gift annuities (CGAs), are life income gifts: you transfer assets now, receiving a charitable deduction for a portion of the transfer, and you or a beneficiary receives income for the rest of your life or a fixed period of time. Both the OEHF and you can benefit from life income gifts such as these. You can also set up a testamentary CRT, to be established upon your passing. While you will not receive a charitable deduction, your estate will.

With a CRT, you irrevocably put assets (cash, securities, etc.) in a trust. The trust then provides income payments of at least 5% annually to you or a named beneficiary. Depending on how you set up the trust, the payments will continue for a fixed period of time, or until the death of the beneficiary. At that time, the remaining assets are transferred from the trust to the OEHF. When you first set up your CRT, you can designate how you would like the OEHF to use these funds.
The amount of income paid out each year during the life of the trust depends on whether it is a charitable remainder annuity trust or a charitable remainder unitrust.

Charitable Remainder Annuity Trust
A charitable remainder annuity trust provides a fixed dollar amount to the beneficiary. This amount is either a stated amount, or corresponds to a percentage of the original investment paid out annually. For example, a $100,000 charitable remainder annuity trust might pay out 7.5% annually. In this situation, the beneficiary would receive $7,500 each year for the lifetime of the beneficiary or a fixed period of years. The $7,500 may be paid in one sum each year, or in several installments throughout the year.

For example: Dr. Edwards irrevocably transfers $100,000 to create a charitable remainder annuity trust that will provide her with life income payments. Included in the trust agreement is the stated payout percentage of 7. She will receive $7,000 annually for her life ($100,000 x 7%). If income earned by the trust exceeds the fixed payment of $7,000, the excess is reinvested.

Charitable Remainder Unitrust
The amount paid annually to the beneficiary of a charitable remainder unitrust is a fixed percentage of the fair market value of the assets, as determined each year. As with a charitable remainder annuity trust, the payments may be made in one lump sum each year, or in several installments throughout the year.

For example: Dr. Browne irrevocably transfers $100,000 to create a charitable remainder unitrust that will provide him with life income payments. The trust agreement provides that he will receive 6 percent of the fair market value of the assets each year. The first year he receives $6,000 (100,000 x 6%). One year later the trust assets are valued at $120,000, so he is paid $7,200 ($120,000 x 6%). If the trust assets are worth $110,000 at the beginning of the next year, he will receive $6,600 ($110,000 x 6%). And so on each year. If trust income exceeds the stated payout percentage, the excess is added to the unitrust assets and reinvested.

Charitable Gift Annuity
A charitable gift annuity (CGA) enables you to transfer cash or marketable securities to the OEHF in exchange for a current income tax deduction and the OEHF’s promise to make fixed annual payments to you for life or for a fixed period of time. Annuity payments can begin immediately or be deferred to some future date. In addition, another beneficiary can receive income from your CGA.

The income received each year is equal to a fixed percentage of the original gift and is also dependent upon the age of the beneficiary, or beneficiaries, at the time the CGA begins to pay out income. Upon the death of the last surviving beneficiary, the OEHF will use any remaining annuity assets to support the program designated when the CGA was established, ie general purposes, research or education.

The tax benefits of a CGA include the ability, regardless of your age or the timing of the income, to take a charitable deduction for a portion of the gift in the year the gift is made. A portion of the annual payments may also be exempt from certain income taxes. Lastly, by using long-term appreciated securities to make your gift, you may be able to reduce your capital gains tax.

The following are rates for a single-life charitable gift annuity as recommended by the American Council on Gift Annuities.

For Example: Dr. Folks, age 75, transfers $10,000 to the OEHF for a gift annuity. He will receive a guaranteed annual of $710 ($10,000 x 7.1% -- the annuity rate for his age).

The rates are different for an annuity for two lives. The rates for two lives are less than rates for one life because the period of payment may be longer. The following chart shows some sample rates based on two lives.

For Example: Dr. Browne is 75 and his wife is 70. They transfer $20,000 to the OEHF for a gift annuity and receive $1,220 annually for life ($20,000 x 6.1% -- the annuity rate for their combined ages). The full guaranteed payments continue for the survivor's life.

Gifts that provide income to the OEHF

Charitable Lead Trust

Individuals with very large estates can use a charitable lead trust to benefit the OEHF and pass principal to family members with little or no tax penalty. It works like this: You transfer assets to a trust that provides payments to the OEHF for a term of years. Then the trust principal goes to your children, grandchildren, or others free of, or at greatly reduced, federal gift and estate tax. (Please note that a generation skipping tax [GST] is imposed on large transfers to grandchildren and others who are more than one generation younger than you.) There are two types of charitable lead trusts.

Charitable Lead Annuity Trust
A charitable lead annuity trust is a custom designed and individually managed trust that enables you to give a fixed annual amount to charity for either a fixed number of years or the life of one or more individuals.

Charitable Lead Unitrust
A charitable lead unitrust is a custom designed and individually managed trust that enables you to give a variable annual amount to charity for a fixed number of years or the life of one or more individuals.

Upon reaching the fixed term for both the lead annuity and lead unitrust, the trust terminates and, according to the terms of the trust instrument, distributes its remaining assets, called the remainder interest, back to you or to one or more individuals that you have specified.