|What is it? || |
An exchange of low-yielding, appreciated assets for higher income. Property (usually highly appreciated) is transferred to the charitable remainder trust.
The trustee pays the income beneficiary (usually the donor and/or spouse) income for life or for a period of years up to 20 years.
The payments must be equal to at least 5% of the trust’s assets. After the trust terminates, the remaining assets are used to establish a fund or funds as instructed by the donor.
|When is it used? ||When a donor wishes to make a substantial future gift and retain higher income on the gift assets during his or her lifetime. |
When a donor wants to diversify assets and increase income from the assets without paying capital gains tax.
When a donor wants a current income tax deduction for a future gift and wishes to remove an appreciated asset from his or her estate. The higher the payment to the income beneficiary, the lower the charitable deduction when the trust is established. When a donor wants either a variable annuity (as with a Charitable Remainder Unitrust) or a fixed annuity (as with a Charitable Remainder Annuity Trust).
|How does it work? || |
The trust document is prepared by your professional advisor or The Minneapolis Foundation stipulating the terms of the trust.
A trustee is chosen (it may be The Minneapolis Foundation, the donor, or a commercial firm).
Assets are transferred to the trust.
Trusts which are trusteed by The Minneapolis Foundation are invested in a diversified investment portfolio that is managed to minimize the taxability of annuity payments.
Depending on the type of trust chosen, the payout may vary:
- With a Charitable Remainder Unitrust, the amount you receive annually is determined on January 1st of the year based on the trust’s assets and its payout rate.
- With a charitable remainder annuity trust, the annuity never varies during the life of the trust regardless of the trust’s assets.
When the trust terminates, the assets left (the “remainder”) are used to establish one or more funds at The Minneapolis Foundation. If you choose to allocate at least one-half of the remainder for Community Action or Field of Interest Funds, the Foundation reduces its customary trusteeship fee.
John and Mary have operated a business for 40 years. They want to retire but their tax advisor has told them they will have to pay capital gains tax if they sell it. But if they give it to a charitable remainder trust they can avoid the tax, get a nice income stream and even get an income tax deduction.
|Sale ||Charitable |
|Value || |
|Cost Basis || |
|Gain || |
|Taxes Due || |
| $4,410,000 || |
You receive 5% per year or $250,000 and you get an income tax deduction of $3,000,000
 These calculations are for illustration purposes only and should not be considered legal, accounting or other professional advice. Your actual benefits may vary depending on your age and the timing of the gift.