Charitable Remainder Trusts

A charitable remainder trust (CRT) provides a way for you to make a gift that benefits both you and your family as well as Hillsdale College.

The immediate benefits to you and your family are significant:

• The avoidance of capital gains taxes on the sale of appreciated property
• A current income tax deduction
• A reduction in estate taxes
• An increase in current income
• The preservation of assets for loved ones
• The establishment of a charitable legacy
  

In addition, Hillsdale College is willing to serve as trustee for a charitable remainder trust at no cost.  This can result in significant savings over the life of the trust.

Simply stated, a CRT is an irrevocable, tax-exempt trust divided into income and gift portions.

Income Portion

The CRT will pay income to you and/or others at a rate of at least 5 percent of the trust value for life or a selected term of years.  In the case of many assets, such as stocks or real estate, the trust will generate substantially more income than was produced before the gift.  Also, the CRT is exempt from capital gains tax so the trust can sell appreciated assets with no tax liability.

Gift Portion

The second part of the CRT is the remainder interest that will pass to Hillsdale College after all income is paid out from the income portion.  This portion, reduced to its present value, constitutes the value of your charitable income tax deduction. 
 

Types of Charitable Remainder Trusts

There are two basic types of CRT's that accomplish different objectives:

1. CHARITABLE REMAINDER ANNUITY TRUST

• Pays a fixed percentage (at least 5 percent of the INITIAL value of the trust at least once each year.  In an annuity trust, if trust earnings are insufficient to make the required payments in any year, the difference is paid from trust principal.
  

2. CHARITABLE REMAINDER TRUST

• Pays a selected percentage (at least 5 percent) of the ANNUAL value of the trust each year.  The trust payout can vary each year due to fluctuations in trust value and earnings.  If trust earnings in any year are insufficient to pay the selected rate of the ANNUAL value of the trust, the difference is paid from trust principal.
  

To avoid the need to invade principal, two additional features can be added to the unitrust:

"NET INCOME" UNITRUST

• Will pay the selected percentage of the annual value OR the net income of the trust, whichever is less.  Thus the payout in Year 1 would be $5,000 rather than $6,000.
  

"NET INCOME WITH MAKEUP" UNITRUST

• Will pay the selected percentage of the annual value OR the net income of the trust, whichever is less.  In subsequent years, previous income shortfalls can be MADE UP if trust income exceeds the selected percentage.
   
  

Other Planning Features of CRT's

EDUCATIONAL & RETIREMENT PLANNING

• CRT's can be structured to provide initial investment in high growth/low dividend assets and then converted at a targeted later date to higher income investments that produce funds for education or retirement.
• Donor receives a current income tax deduction while providing for future income needs.
   
  

Charitable Lead Trusts

The charitable lead trust is the opposite of a charitable remainder trust.  Instead of giving a sum of money to Hillsdale College and receiving an income for life, a donor places property in trust, with the income going to the College for a specified number of years.  Upon termination of the trust, the principal returns to either the donor or to someone the donor names.  There are two types of charitable lead trusts:

1. GRANTOR TRUST

• The principal may revert to the donor or others.
• Immediate income tax deduction (limited to 20 or 30 percent of adjusted gross income with no carry-over privileges).
• Trust income taxable to grantor.  However, if trust is funded with tax-free bonds, there is no income tax.
• Especially attractive for persons with an extraordinarily high income tax in a particular year and who can fund the trust with tax-free bonds.
  

2. NON-GRANTOR TRUST

• The principal must not revert to donor or his/her spouse.
• No immediate income tax deduction.
• Trust income taxable to trust. (Proper planning can result in reduced or no income tax to trust or eventual beneficiaries.)
• Appreciation in value of assets passes to beneficiaries and is kept out of grantor's estate.
• Especially attractive for one who is interested in shifting income and who wants beneficiaries to receive the property eventually at a reduced estate and gift tax to donor.

If you would like a complimentary and personal illustration of a charitable remainder trust prepared for you, please click here.