Of course, the charities are selling you on the tax benefits of planned
giving. Gifts made pursuant to your will reduce the amount of tax your
estate will eventually owe.
Obviously, contributions made over your
lifetime will result in an itemized deduction on your tax return during the year
of the gift. In this article, we give you a quick review of the various
types of options you may have presented to you by a charity.
Charitable Remainder Annuity Trust
With a charitable remainder annuity trust, you can transfer assets into a
trust that pays out an established amount each year to yourself or your children
(or other non-charitable beneficiaries) over the life or lives of the
beneficiaries (or some other fixed term) and the remaining assets are
distributed to your selected charity. This type of trust is very popular
with both the charities and their contributors. The contributor or his or
her beneficiaries receives the current income from the contributed assets for a
specified period of time and the remainder goes to the charity. The
contributor gains an immediate tax deduction for the value of the remainder
interest that goes to charity upon termination while keeping the income
Charitable Remainder Unitrust
The charitable remainder unitrust is identical to the charitable remainder
trust except that the income paid out to the non-charitable beneficiaries is
either the actual income of the trust's assets or a percentage thereof.
With the charitable remainder trust, the income is a set amount determined when
the trust is established.
Charitable Income Or Lead Annuity Trust
The charitable income trust is almost the reverse of the charitable annuity
trust. Again, you would transfer assets to a trust. However, with
the charitable income trust, the set amount paid out during the life of the
trust goes to the charity (or charities) and the remainder at the termination of
the trust would go to you, your estate or your beneficiaries. Instead of
obtaining a deduction for the value of the assets you pay into the trust, your
deduction would come from the income payments made to the charity. You may
still be liable for tax on the income earned by the trust.
Charitable Income Or Lead Unitrust
Again, the only difference between this trust and the annuity trust above is
that the trust pays the either its actual income or a percentage of the income
(or asset value) to the charity instead of a set amount. Just as with the
annuity trust above, the charity receives the income over a specified time
period and you or your heirs receive the remainder.
Charitable Gift Annuity
Using a charitable gift annuity, you would donate property to a charity and
enter into a contract whereby the charity agrees to pay you or another
non-charitable beneficiary a fixed amount for life. In this type of
contract arrangement, your charitable deduction would be the value of your
donated property less the calculated present value of your annuity.
Pooled Income Fund
This arrangement works much like a mutual fund that is controlled by the
charity. You donate money into the pooled fund and the charity pays you or
a designated beneficiary a share of the income generated by the fund for
life. The remainder upon your (or your beneficiary's) death is then
distributed to the charity. Your income tax deduction would be obtained in
the year you made the donation and based upon the value of the remainder
This strategy involves naming your favorite charity as the beneficiary of a
life insurance policy. There are some limitations involved, but the
contribution of the policy and any future premiums paid may be tax deductible.
Please be aware that there are many variables and pitfalls to deferred
giving. Many charities come equipped with "boiler-plate" trusts
and strategies that may not always be in your best interests. If you are
considering such an arrangement with a charitable organization, it might be wise
for you to first sit down with us so that we can examine your present situation
and determine how such an arrangement might fit in with your current estate