Charitable Remainder Trusts
Two basic types of charitable remainder trusts allow you to qualify for federal tax benefits and continue to receive income from your stock, cash or other assets. You give your assets to a trust and those assets are invested, producing income for you - or another beneficiary - for either a fixed period of time or for your lifetime. You may claim a tax deduction for the estimated portion of the assets that will ultimately come to Howard University School of Law. At the end of the trust period, the School of Law keeps all remaining assets.
The two types of remainder trusts are unitrusts and annuity trusts.
Under a unitrust, the donor receives one or more yearly payments equaling a fixed percentage of the value of the asset, which is assessed each year. As the value of the asset grows, so does your income. Under a net income unitrust, the donor receives only the income earned by the trust, even if the trust earns less than the payout rate. However, the trust can be set up to include a “make-up provision,” which allows the donor to make up the lost income, provided the trust earns more than the payout rate in future years. You can also invest the principal of the trust in securities that pay tax-exempt income.
Under an annuity trust, the donor receives a yearly fixed payment equaling at least five percent of the value of the asset at the time the deferred giving agreement was signed. People who want a predictable income each year like this option. Donors who contribute charitable remainder trusts may receive income tax deductions and escape capital gains taxes. Many donors find the trusts an appealing way to prepare for retirement. The assets can be invested to earn a lower rate of return when the donor is younger and then shifted to earn a higher rate of return, providing more income during the donor’s later years.
Shifting Income for College Expenses
A charitable remainder trust allows you to make a gift to the School of Law, receiving an immediate income tax deduction and provide an annual income for a child or grandchild to help pay for college. Your beneficiary will receive a fixed or variable payment each year and you gain an immediate tax savings.
updated: May 21, 2013