- Charitable Remainder Trust – Annuity
AN IRREVOCABLE LIFE INCOME GIFT–FIXED AMOUNT
A Charitable Remainder Annuity Trust (CRAT) is an agreement in which you irrevocably transfer assets to a trustee. The trustee can be the Community Foundation.
How it works:
- The Trust provides income to you or another income beneficiary you name for life – or for a specified number of years (up to 20 years).
- The annual payout is a fixed dollar amount which does NOT change.
- You specify the payout rate when the Trust is established. The annual payout many not be less than 5% of the initial value of the Trust. Also, the annual payout rate cannot exceed 50% of the initial value of the Trust.
- The specified annual payout will be made each year regardless of the actual income earned by the Trust. (The Trustee may invade principal to make the required payment, if necessary.)
- The annual payout may be taxed favorably to you or the income beneficiary who receives it. (For example, a portion of the payout could be taxed as capital gain; or, a portion could be tax-exempt, depending upon the way in which the Trust assets are invested.)
Benefits to you:
- You receive income for life which may be higher than you are currently earning from your other investments.
- If you use appreciated assets – such as stock – to fund the Trust, you will usually avoid the capital gains tax on the appreciation.
- You get an income tax deduction for creating the Trust equal to the charitable remainder interest. You may save estate taxes and probate costs later because of the Trust.
- You make a gift to charity while also retaining annual income for life for yourself or to use to help loved ones, i.e., helping to pay a niece’s, nephew’s, or grandchild’s education.
