W—Charitable Remainder Trust

The charitable remainder trust enables an individual to make a substantial deferred gift to a favored charity while retaining a right to payments from the trust. Under the right circumstances use of such a trust offers multiple tax and nontax advantages, particularly to the individual who owns substantially appreciated property. These advantages include a charitable deduction resulting in reduced taxes, an increase in cash flow, avoidance of capital gains upon a sale of the appreciated property, the eventual reduction or elimination of estate taxes, and the satisfaction of knowing that property placed in the trust will eventually pass to charity. When combined with a wealth replacement trust, the full value of the estate can still be preserved for heirs.

DURING LIFETIMEthe grantor, after establishing a charitable remainder trust, gives property to the trust while retaining a right to payments from the trust. Aunitrustprovides for the grantor to receive annually a fixedpercentageof the trust value (valued annually), whereas anannuity trustprovides for the grantor to receive annually a fixedamount. Either type of trust could require that payments be made for the joint lives of the grantor and another person, such as the grantor’s spouse.

At the time the property is given to the trust, the grantor can claim a current income tax deduction equal to the present value of the charity’s remainder interest. Upon receipt of the gift, the trustee will often sell the appreciated property and reinvest the proceeds in order to better provide the cash flow required to make the payments to the grantor. This sale by the trust is usually free of any capital gains tax.