Charitable Remainder Trust

What it is:

Property is placed into a trust and during your life you receive the income from the trust either as an annual recalculated annuity or a fixed annuity. After your life, the remainder of the trust passes to the Foundation. You receive a current charitable deduction equal to the value of the remainder passing to the Foundation. You receive a current deduction because a charitable remainder trust is an irrevocable trust, meaning you will not be able to change your mind and take the property back.

Why do this: There are a number of advantages to a charitable remainder trust as opposed to a straight gift, a bargain sale, or donating appreciated property. One advantage is that you can still use income earned on the property during your lifetime so your lifestyle can be maintained. Another advantage relates to the property put into the trust. If you put in property that has appreciated, such as stock or land, you will not have to pay any capital gains tax on the donation, nor will there be any capital gains tax paid when the asset is sold by the charitable remainder trust. You will receive a deduction equal to the remainder value of market value of the property donated, i.e., you get a tax deduction for the increased value of the property without recognizing capital gains. Another advantage of a charitable remainder trust is that the property is removed from your taxable estate. The Foundation receives the entire value of the assets whereas other heirs would receive an estate-tax-depleted amount.