There are two basic forms of charitable remainder trusts (CRTs), a unitrust, and an annuity trust. Before discussing the two different forms, let's look at the basic nature of CRTs.
CRTs involve the irrevocable gift in trust of cash, securities, real estate, or other property to a trustee under a trust agreement. The agreement must provide that income from the trust fund will be paid to you -- or another person designated by you -- for life or for a period of not more than twenty years.
The amount of income to be paid is expressed in terms of a stated percent (not less than 5%) of the value of the fund. On the death of the last surviving income beneficiary (or the expiration of a term of years), the trust terminates and the assets in the trust pass entirely to Saint John's.
Under an annuity trust, the creator of the trust (you) selects an amount which must be paid each year. That amount must be at least 5% of the initial value of the property placed in the trust. The payments are fixed and predictable and must be paid by the trustee even if it is necessary to use principal from the trust fund in order to do so.
A unitrust is more flexible than an annuity trust in that it can provide a hedge against inflation, but it involves an element of risk for the income beneficiary. Under a unitrust, the creator selects a percentage (at least 5%) of the value of the trust to be paid as income, but in this form of trust, the value of the fund is determined each year. Thus, the income payments will rise or fall with the annual valuation of the trust assets. In an inflationary period, this form of trust tends to protect the real value of the beneficiary's income.
A CRT is a particularly beneficial strategy for individuals who want to preserve assets while minimizing taxes and at the same time generate a current income. A CRT is very useful for business owners or stock holders who have experienced a large increase in the value of assets over a period of time and who want to preserve those assets for future generations as opposed to paying a large percentage of those assets for taxes.
In addition to preserving assets, the donor might actually increase disposable income, might relieve himself/ herself of the management burden of property placed in the trust, provide an income for a surviving beneficiary if desired, and enjoy the satisfaction of ultimately providing a gift to Saint John's Prep. If you would like additional information, please visit us, phone, e-mail, or write.
Hypothetical examples. This information should not take the place of qualified legal advice. We are neither lawyers nor accountants. Tax laws are changing all of the time; be sure to have and use the latest information.
Brenda Brown ~ Director of Advancement ~ 800-525-7737 ~ 320-363-2098 ~ bbrown@csbsju.edu
