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A charitable remainder trust is an individually managed
trust that can be tailored to meet your needs while
benefiting Hobart and William Smith Colleges. You and
your designated beneficiaries receive income of at least
5 percent over your lifetimes or for a specific term
of years. You receive an income-tax deduction based
upon the value of the trust's remainder interest and
do not have to recognize capital gain at the time the
trust is created, when appreciated assets are transferred
to the trust. Since the trust is tax exempt, appreciated
assets may be sold without immediate capital gain consequences.
Charitable remainder trusts are generally established
with gifts of $100,000 or more. You may establish your
charitable remainder trust independently with a trustee
and qualified fiduciary institution of your own choosing
or through Hobart and William Smith Colleges' planned
giving investment manager. In either case, we urge you
to consult your attorney and/or financial adviser as
well as the Colleges' Gift Planning Office to ensure
that you have chosen the planned gift that best meets
your charitable and estate planning goals.
There are two types of charitable remainder trusts:
A charitable remainder unitrust pays income equal to
a fixed percentage of the value of the principal which
is revalued annually: a charitable remainder annuity
trust pays a fixed percentage that is agreed upon when
you create the trust.
Charitable Remainder
Unitrust
With a unitrust, you agree upon the percentage you will
receive when the trust is created, and the trust principal
is revalued each year to determine that year's income.
In addition to a regular unitrust, there are other kinds
of unitrusts that may be appropriate in certain situations.
The differences among the unitrusts relate to the payout
of the unitrust. For example, a net income unitrust
pays the lesser of the trust's actual yield or the stated
percentage of the trust principal each year.
Summary:
- Minimum transfer of $100,000 in cash or appreciated
property.
- Income is a percentage of net fair market value,
which is revalued annually, and varies from year to
year.
- Income payments are quarterly.
- Income may go to the donor and/or others named in
the trust agreement.
- Charitable deduction is the present value of the
charitable remainder interest.
- The Colleges or a qualified fiduciary institution
of the donor's choice may manage the trust.
- Advantages to donor:
- Potential growth of principal and income
- Income tax charitable deduction when arranging
the gift
- Avoids capital gain tax when the trust is created
- Federal estate tax deduction
- Trust can receive additional contributions
- Opportunity to provide a supplement to income
for another person
| Example:
Mrs. Fletcher wants to make a gift to the Colleges'
endowment, but she wants to make sure that she
and her husband, both 76, will have the advantage
of the income from their gift during their lifetimes.
The Fletchers and their adviser talk with a representative
from the Colleges and decide that they will create
a $200,000 charitable remainder unitrust that
will pay 6 percent of the annually valued trust
assets to them each year.
Their first-year payment will be $12,000. At
the end of the second year the trust principal
grows to $210,000, so the Fletchers will receive
6 percent of $210,000 or $12,600. Based upon their
ages, rate of return and tax bracket when they
create their gift plan, the Fletchers receive
an income-tax deduction of $91,504, which is based
upon their ages and the rate of return they have
designated. |
Charitable Remainder
Annuity Trust
An annuity trust works much the same way as a unitrust,
but instead of receiving an income that varies with
performance of the trust assets each year, you receive
a fixed amount annually.
Summary:
- Minimum transfer is $100,000 in cash or appreciated
property.
- Income payment, a fixed percentage of the initial
fair market value, will remain the same each year.
- Income payments are quarterly.
- Income may go to the donor and/or others named in
the trust agreement.
- Charitable deduction is the present value of the
charitable remainder interest.
- The Colleges or a qualified fiduciary institution
of the donor's choice may manage the trust.
Advantages to donor:
- Known annuity payments
- Income tax charitable deduction when arranging the
gift
- Avoids capital gain tax when the trust is created
- Federal estate tax deduction
- Opportunity to provide a supplement to income for
another person
| Example:
If Mr. and Mrs. Fletcher had desired a steady
stream of income, rather than a variable rate
of return, they might have established a charitable
remainder annuity trust. If they donated $200,000
at 6 percent, they would receive $12,000 each
year during their lifetimes and their income-tax
deduction would be $90,628. |
A graphic example of a charitable remainder trust is available.
A variation of a Charitable Remainder Trust, called a Flip Unitrust, provides the flexibility often needed for gifts of real estate. Property is placed into the trust but the trust does not pay income until a defined “trigger” event, such as the sale of the property. More information regarding Flip Unitrusts is available.
| Recent HWS Example:
Joseph Cincotta `55 – Charitable
Remainder Unitrust |
About
10 years ago, I attended a reception for Hobart
and William Smith in Sarasota. Over the next several
years, I visited with members of the staff when
they were in Florida and greatly admired the work
being done by trustee Jane Shepard Ritter '48.
Hobart College has always meant a great deal
to me, and though my visits to campus have been
few, I have thought about the part Hobart has
played in my life and wanted to do something to
ensure it would be there for others.
I settled on a charitable remainder unitrust
as the best way for me to make a gift. I have
been fortunate in some of my investments and used
appreciated stock to fund it. Making my gift this
way, I avoided capital gain tax and will receive
income for life. With a unitrust, I still stand
to benefit from appreciation.
My gift will one day be used to make real estate
purchases with preference given to land that will
be used for agricultural or scientific research,
a special interest of mine after operating a large
farm in Florida for all of my adult life. |
Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. As with all tax and estate planning, please consult your attorney or estate specialist. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. This Planned Giving section has been developed for Hobart and William Smith Colleges by Future Focus.
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