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Individuals
> Charitable Giving Plans
> Charitable Trusts > More
Information
Charitable Remainder Trusts
Charitable Remainder Unitrust
The Charitable Remainder Unitrust is a special trust that pays income to the
donor and/or family members. After all of the income payments have been
completed, the remainder is distributed to your home church the Brethren in
Christ Ministries of your choice. You as the donor may select the people to
receive the income from the trust, and the Brethren in Christ ministries and
other charities which will receive the principal of the trust after all income
payments are completed. The major benefits of the trust are:
• Bypass of Capital Gains Tax
• Increased Income
• Charitable Income Tax Deduction
Bypass Capital Gains
Investments of property eventually mature. At certain times, it is wise to sell
and reinvest. The Unitrust is an ideal method for a tax-free reinvestment, since
the qualified Unitrust bypasses the capital gains tax. If the Unitrust earns
more than the payout percent, this gain is permanently bypassed. However, if
trust earnings are less than the payout percent, most Unitrusts will pay out the
earnings and some principal. In this case, part of the capital gain may be paid
out. Fortunately, any capital gain payout is taxed at capital gain rates.
Increased Income
Mature investment properties could be earning two percent or less per year. The
capital gains tax-free reinvestment through the Unitrust might enable a person
to sell through a trust without tax an asset earning a low rate of return and
reinvest in an asset earning a higher rate of return. The increased earnings can
then be passed on to the income recipients using the Unitrust income produced by
higher yield investments. Over the years, family members can reinvest the
additional income and acquire even greater economic security.
Income Tax Deduction
After the completion of all income payments, the principal or principal is
distributed to charity. Even though your designated charities may not receive
anything for many years, the government permits the donor (the person who
establishes the irrevocable trust) to take an immediate income tax deduction.
The deduction is a percentage of the value of the property transferred to the
trust and is calculated using the ages of the donors and the Unitrust percentage
established. Many trust donors use their current tax savings for additional
investments. They are able to enjoy the maximum return from their charitable
trust payments and also benefit at the same time from substantial income tax
savings.
Unitrust Percentage
The Foundation will offer a percentage to the donor. The Unitrust percentage may
amount to five percent or more of the value of the trust. Each year the trustee
determines the fair market value of the trust. The Unitrust then pays the
selected percent of the fair market value to the family. For instance, if a
trust is valued at $100,000 and the donor selected a 6% Unitrust percentage, the
Foundation would multiply the 6% times the $100,000 in value and distribute
$6,000 that year. If earnings were 7% or 8% and the trust distributed 6%, the
extra 1% or 2% would be added to principal. Since the income payments depend
upon the value in trust, many people select a lower percentage and then hope to
benefit from the growth of the trust value during the later years of the trust.
Duration of Income
In addition, the donor may also select the time for which payments are to be
made. This time may be one life, two or more lives, or a term of one to twenty
years. After the income recipients have passed away, the trust principal will
then be distributed to charity.
Charitable Remainder
Finally, the donor may select the Brethren in Christ ministries and other
charities that will receive the trust remainder (the principal of the trust
after all income payments are completed). The entire principal could be
distributed to one ministry, or the principal may be divided among several
charities. The selection of the charities is entirely under the control of the
donor.
Trustee
The Brethren in Christ Foundation will serve as trustee. In this capacity the
Foundation will invest the funds, administer the trust, file the appropriate
information, and provide statements and annual tax reports.
Charitable Remainder Annuity Trust
Highly appreciated, low yield property may be transferred into a charitable
remainder annuity trust. The individual selects an annuity amount or a percent
of the initial fair market value which will be paid for one or two lifetimes.
The annuity amount will be fixed and will not change regardless of the value of
the trust principal or the return of the trust.
After all of the income payments have been completed, the remainder is
distributed to your home church or to the Brethren in Christ Ministries of your
choice. The major benefits of the trust are:
• Bypass of Capital Gains Tax
• Increased Income
• Charitable Income Tax Deduction
An annuity trust may be funded with cash or low yield or highly appreciated
investments or real estate. The donor selects the income recipients, the annuity
amount and the charities to receive the trust principal after all income
payments have been completed.
Trust Funding
For example, a husband might transfer into an Annuity Trust stock with a cost
basis of $10,000 and fair market value of $100,000. He could select a 5% annuity
in the amount of $5,000 for himself and his spouse for life and then direct that
after the death of both, they may direct the remaining amount to be distributed
to their local Brethren in Christ Church or other ministries and favorite
charities.
Increased Income
After the transfer of the property, the Foundation could sell the property and
invest in much higher yield securities without payment of capital gains tax. The
donors would receive a considerably larger income which could in part be
sheltered by a charitable deduction.
Fixed Payment
The annuity trust is very straight forward. A fixed amount is paid for the two
lives of the donor and spouse. It is entirely appropriate to use an annuity
remainder trust if the donors are elderly and feel comfortable with the fixed
amount. For these people, the comfort of knowing that their payment is not
dependent upon market variations may be considerable and the fixed payment of
the annuity trust may satisfy their needs.
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