Charitable Remainder Trusts
Charitable remainder trusts are excellent vehicles for meeting one’s immediate income needs while providing significant future funding for the University. A charitable remainder trust can be structured in two ways: as an annuity trust or as a unitrust. In both cases, the donor determines the annual payment, which must be at least 5 percent of the value of the trust.
An annuity trust pays the donor or other designated beneficiary a fixed dollar amount each year. Subsequent contributions are prohibited. A unitrust provides variable payments. The payments are based on a fixed percentage. The payments will fluctuate each year with the earnings of the trust assets. Additional contributions are allowed.
A charitable remainder trust can be structured to provide supplemental retirement income for the donor, to cover educational expenses for a grandchild, or to supplement the income of an older family member. The trust can provide payments over the lifetime of one or more beneficiaries, or for a specified number of years. At a time specified by the donor, funds remaining in the trust are transferred to the UNH Foundation to benefit the University program of the donor’s choice. A charitable remainder trust requires a minimum gift of $100,000.
Charitable Remainder Annuity Trust
Example:
After consulting with their attorney regarding their estate plans, Fred and Louise White, both in their early eighties, decided to establish a charitable remainder annuity trust with the UNH Foundation. This allowed the Whites to make a gift to UNH and will provide them with an additional source of predictable and secure income. They set up a 5 percent trust with $200,000 of appreciated securities that have a cost basis of $40,000. As a result, they will receive a fixed annual income of $10,000 (5 percent of the initial value of the trust) and qualify for a charitable deduction of $124,354. When the annuity trust principal passes to the UNH Foundation, their gift will establish an endowed fund for the undergraduate and international research opportunities programs.
Charitable Remainder Unitrust
Example:
Tom and Mary Smith, both in their seventies, have been thinking about retirement and estate planning. They have wanted to make a magnificent gift to the University for many years, and were seeking an approach that would secure their income while benefiting UNH. They decided to set up a 5 percent charitable remainder unitrust with appreciated securities purchased many years ago for $300,000, and currently valued at $1.5 million. In making this gift, they qualified for a federal income tax deduction of approximately $691,650. In the first year, their income payments will be about $75,000. Payments in the future will vary with the value of the unitrust. When the unitrust term ends, the Smiths have arranged for the principal to pass to the UNH Foundation to establish an endowed fund for scholarships.
Annuity Trusts and Unitrusts
Example:
In setting up their respective trusts, the Smiths and the Whites became lifetime income beneficiaries of the full value of their gifts. If they had sold the securities themselves, they both would have owed tax (at the 15 percent capital gains rate) on the capital gain portion of their gift.
