Charitable Remainder Trusts
A Charitable Remainder Trust distributes income to a donor or other beneficiaries for their lives or a specified term of up to 20 years. The balance of the trust assets are available for support of The Citadel at the end of the trust term.
Charitable remainder trusts offer opportunities to address specific goals and objectives for donors. For example, a charitable remainder trust established for a term of years can assist in funding the costs of college for a child or grandchild. Also, charitable remainder trusts are frequently used to provide supplemental income during retirement. Such trusts are especially attractive as a way to convert appreciated, low-yielding assets into a high-yielding diversified portfolio without incurring capital gains tax. A donor to a charitable remainder trust receives a charitable deduction for the charitable remainder interest, generally an amount equal to the projected value of assets left in the trust at the end of the trust term.

Charitable remainder trusts take two basic forms: the charitable remainder unitrust and the charitable remainder annuity trust.

A charitable remainder unitrust pays income based on a percentage of the fair market value of the trust assets as determined annually. Because a unitrust pays a variable amount of income based on the annual market value of the trust assets, this form of charitable remainder trust can be an effective hedge against inflation.

When the value of the trust principal increases, so will the beneficiaries' income. There are important variations of charitable remainder unitrusts, including "net income" unitrusts, "net income with make-up" unitrusts, and "flip" unitrusts, each available to tailor the arrangement to your family's financial needs.

Example: Mr. Smith, age 68, transfers appreciated securities that cost him $100,000 and are now worth $500,000 to a unitrust with an annual payout rate of six percent (6%). He is to receive payments for life. At his death, the unitrust assets will create an endowed fund for The Citadel.

Mr. Smith's charitable deduction is $229,515. Had Mr. Smith sold the property rather than donating it, he would have paid $80,000 in capital gains, leaving only $420,000 for investment; since TCF pays no capital gains taxes, the full $500,000 is left in the trust. Under the provisions of the trust agreement, Mr. Smith's first annual payment will be $30,000, a significant portion of which may be taxed at capital gains tax rates. In year two, assuming an increase of ½% total annual investment return, the trust will have a principal balance of $517,500, and the payment will be $31,050.

Assuming the same 9.5% total return, the payment in year three will be $32,137, and so on for life. On the other hand, if the trust loses value from year to year, income payment would decrease accordingly. Donors to unitrusts should carefully consider this risk and be aware that negative investment returns will be experienced from time to time.

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A charitable remainder annuity trust pays a fixed annuity equal to a percentage of the initial value of the trust. Since the annuity payment does not change during the term of the trust, an annuity trust provides the certainty of a fixed amount of income each year regardless of fluctuations in the value of the trust assets.

Example: Colonel Jones owns appreciated securities that cost him $60,000 originally and are now worth $100,000. He donates these securities to The Citadel Foundation to establish a charitable remainder annuity trust, naming his wife, age 65, as the lifetime beneficiary. The trust agreement provides for annual payments to Mrs. Jones of $6,000, (or six percent {6%} of the initial trust principal) for her lifetime. Colonel Jones qualifies for an immediate income tax deduction of $39,791. Additionally, capital gains taxes on the $40,000 appreciation that would have resulted had he sold the securities is not incurred when the trust sells the donated property. At Mrs. White's death, the trust principal will pass to The Citadel Foundation for the purpose designated by Colonel Jones.

Click here to create a personalized projection for a Charitable Remainder Annuity Trust