A trust is a legal agreement that specifies how the assets placed under the trust will be managed. The charitable remainder trust is an attractive method to achieve a variety of goals while providing income for life and knowing that after your lifetime, the property remaining in the trust will be used by Citizens Utility Board as you specified. There are two types of charitable remainder trusts - the unitrust and annuity trust.
Unitrust: income fluctuates annually with the fair market value of the trust.
For example, Mr. Edwards irrevocably transfers $100,000 to create a charitable remainder unitrust that will provide him with life income payments. The trust agreement provides that he will receive 6 percent of the fair market value of the assets each year. The first year he receives $6,000 (100,000 x 6%). One year later the trust assets are valued at $120,000, so he is paid $7,200 ($120,000 x 6%). If the trust assets are worth $110,000 at the beginning of the next year, he will receive $6,600 ($110,000 x 6%). And so on each year. If trust income exceeds the stated payout percentage, the excess is added to the unitrust assets and reinvested.
Annuity Trust: income payments are fixed and determined when the gift is made.
For example: Mrs. Edwards irrevocably transfers $100,000 to create a charitable remainder annuity trust that will provide her with life income payments. Included in the trust agreement is the stated payout percentage of 7. She will receive $7,000 annually for her life ($100,000 x 7%). If income earned by the trust exceeds the fixed payment of $7,000, the excess is reinvested.
The many benefits of a Charitable Remainder Trust include:
A Pooled Income Fund is a type of charitable remainder trust that operates somewhat like a mutual fund, wherein your gift to the fund, along with similar gift from others, are invested in a common fund. A pooled income fund gift may be established with an amount as little as $5,000. You will receive income earned by the fund in proportion to the number of shares you have in the fund. Citizens Utility Board may use the remaining principal only after your death (and the death of one surviving beneficiary if one is designated).
For example, Mr. Simon's $10,000 life income gift is invested in our pooled income fund. The fund's net income is 6 percent this year, so he receives $600--his share of the annual earnings. Each year, Mr. Simon's payment will reflect any increase or decrease in the fund's net income.
Note: Currently, pooled income fund gift are unavailable in the states of Arkansas, Connecticut, Florida, Mississippi, Nebraska and Tennessee.
These types of trusts allow you to attain your own personal financial objectives while making a significant gift to Citizens Utility Board. The best type for you depends on your own individual needs.
We make no claims regarding the accuracy of the above information or the tax consequences stemming from your use of it. Please consult with your own tax, legal, or financial planning advisor.