Charitable Remainder Trusts

A charitable remainder trust enables a donor to make a gift that will provide a fixed rate of return for a predetermined amount of time. At the conclusion of the term, the remainder becomes a charitable gift to UJA-Federation. With potentially positive tax implications, a charitable remainder trust offers an opportunity for you to make a significant contribution to UJA-Federation and enjoy secure income.

• Potential for an immediate charitable deduction on your income taxes.
• Possible avoidance of estate taxes on contributed assets.
• Lock in a long-term annuity for designated beneficiaries.
• Remainder of the trust ultimately benefits UJA-Federation.
• Potential for tax-free income.

Find out more about our Charitable Remainder Annuity Trusts and Charitable Remainder Unitrusts.

The Charitable Remainder Annuity Trust

• Fixed lifetime annuity at favorable rates.
• Elimination of initial-tax on capital gain for contributed appreciated property.
• Current income tax charitable deduction.
• Avoidance of estate taxes on contributed assets.
• Potential for tax-free income; and opportunity to make a significant contribution to UJA-Federation.

The Charitable Remainder Annuity Trust is a way to avoid the fluctuation in interest rates and ensure fixed income for life. A gift of cash or appreciated property is used to set up the trust with UJA-Federation either during a donor's lifetime or through his or her will. This trust agreement locks in a long-term annuity rate, and donors or their designated beneficiaries receive regular annuity payments for life or a period of time not to exceed 20 years.

A Charitable Remainder Trust pays an annual annuity, the rate for which depends on prevailing market conditions. The term of payment may extend through two or more lives, depending tax-planning considerations, and ultimately, the remainder in the trust becomes the property of UJA-Federation.

When appreciated property is contributed to fund the trust, the contributor avoids any initial income tax on the capital gain. The contributed property is received by the trust at its fair market value, and the annuity rate is multiplied by this value to calculate the periodic payments to the income beneficiaries. In addition, the donor is entitled to a current income-tax charitable deduction based on the present value of the remainder interest to UJA-Federation.
Example: Stock worth $50,000, which cost the donor $10,000, is contributed to a Charitable Remainder Annuity Trust, which then disposes of the stock and reinvests the proceeds. The trust is credited with the full value of the stock, and neither the trust nor the contributor is initially charged with income tax on the capital gain. The trust provides income for the life of the donor at a fixed rate of, for example, 5 percent, guaranteeing  payments to the donor of $2,500 per year ($50,000 x 5 percent).

The Charitable Remainder Unitrust

Another type of Charitable Remainder Trust, referred to as a Unitrust, may be used to provide a variable payment, based upon a fixed rate multiplied against the revaluation of the trust each year. In an inflationary period, when trust assets grow, the increasing value of the trust portfolio will result in larger annual payouts.

• Lifetime income at favorable rates.
• Elimination of initial tax on capital gain for contributed appreciated property.
• Current income-tax charitable deduction.
• Avoidance of estate taxes on contributed assets.
• Opportunity to make a significant contribution to UJA-Federation.

The Charitable Remainder Unitrust provides a way to obtain income for life that can grow as the funds invested in the trust grow. The Unitrust provides a variable payment, based upon a fixed rate multiplied against the revaluation of the assets in the trust each year. As trust assets grow, the increasing value of the trust portfolio will result in larger annual payouts.

A variation of the standard form of unitrust, known as a "Flip-CRUT", or "Flip-Unitrust", may also be available if certain criteria are met. Generally, a Flip-CRUT, funded with hard to sell assets, starts as a unitrust paying the lesser of the net income of the trust or the unitrust amount. The trust then "flips" to a standard unitrust effective in the year following the year in which a substantial, or designated, portion of the assets is sold.

A gift of cash or appreciated property (for example, stocks or real estate) is used to set up the trust with UJA-Federation either during a donor's lifetime or through his or her will. This trust agreement fixes a unitrust rate, and donors or their designated beneficiaries receive regular payments of income for life or a period of time not to exceed 20 years.
The term of payment may extend through two or more lives, depending upon tax planning considerations, and, ultimately, the remainder in the trust becomes the property of UJA-Federation.

When appreciated property is contributed to fund the trust, the contributor avoids any initial income-tax on the capital gain. The contributed property is received by the trust at its fair market value, and the unitrust rate is multiplied by this value to calculate the initial periodic payment to the income beneficiaries. In addition, the donor is entitled to a current income tax charitable deduction based on the present value of the remainder interest to UJA-Federation.
Example: Stock worth $50,000, which cost the donor $10,000, is contributed to a Charitable Remainder Unitrust, which then disposes of the stock and reinvests the proceeds. The trust is credited with the full value of the stock, and neither the trust nor the contributor is initially charged with income tax on the capital gain. The trust provides income for the life of the donor at a unitrust rate of, for example, 5 percent, providing the donor payments of $2,500 the first year ($50,000 x 5 percent).

Thereafter, the value of the securities is established on the first business day of each calendar year, and the unitrust rate is applied to this new value to establish the payment for the current year. If, for example, the trust assets had increased in value to $60,000, the payment for the year would be $3,000 ($60,000 x 5 percent).