A Charitable Remainder Trust, whether set up as an annuity trust or a unitrust, is an extremely useful estate and financial planning tool. Typically, CRTs offer three important tax benefits:

• A current income or estate tax deduction for the present value of the remainder committed to charity;
• The avoidance of capital gains tax when the appreciated assets are sold;
• Exemption from tax of earnings of the trust until they are distributed to the income beneficiary.

In addition, because the assets of a CRT are exempt from tax on the income earned by the trust, the proceeds are available for reinvestment by the trustee. This means the donor can potentially realize more spendable income from the CRT’s investment and conversion of assets than he or she could in an individual capacity.

Whether the trust is structured as a unitrust or annuity trust, The Trust is an ideal remainderman of a CRT. Donors can rely on The Trust’s expertise in philanthropic administration and grantmaking as well as investment management, and benefit from The Trust’s flexibility with respect to the variety of charitable funds it offers and the types of gifts that it can accept.

For more information on charitable remainder trusts, please see our March and June 2008 issues of Professional Notes, discussing charitable remainder annuity trusts and unitrusts, respectively.

...to cover the payment to the income beneficiary?

If the donor does not want to invade principal to pay the income beneficiary, an income-only unitrust may be the answer because it makes payments only out of income. In addition, the trust instrument may provide that if income has not been enough to cover the unitrust payments in prior years, income in excess of that amount in later years can be used to make up the shortfall.

Or a "flip" trust might be the solution, changing from a net income unitrust to a standard unitrust upon the occurrence of an event, such as the sale of low-income producing assets contributed to the trust.

Where the remainder will come to Community Funds for a purpose we have approved, we are happy to consider serving as trustee. We will need to review the proposed trust agreement, the asset proposed to be contributed, the payout terms, and likely duration of the trust. Please contact Jane Wilton to discuss further.

Under a charitable lead trust, which can be created by a deed of trust or will, an annuity or unitrust payment from the trust is paid to a fund in The New York Community Trust for a designated period of time, at the end of which the principal would be paid to a non-charitable beneficiary selected by the donor.

A charitable lead trust created by will can cut down substantially on estate taxes because of the charitable deduction for our charitable interest in the annuity or unitrust payment. The value of the charitable interest, of course, depends on the length of the trust and amount or percentage to be paid out each year. The savings in estate taxes means that the members of the donor's family may ultimately receive more than if the property were left to them at the donor's death.

Similarly, a charitable lead trust created during the donor's lifetime generally eliminates income taxes on the income from the assets placed in the trust because the amounts paid to charity are fully deductible against the trust's income. It also reduces the gift tax on the property eventually passing to children or grandchildren, provides for charity, and ensures that the property passes intact.

Unfortunately, we cannot serve as the trustee of your client’s charitable lead trust. If your client is considering establishing a charitable lead trust naming The Trust as a lead beneficiary, please call Jane Wilton, general counsel, and she will be happy to discuss possible alternatives for selecting a trustee.

Many people find in later years that they don't need all the insurance they did when they were younger. They donate the policies to the funds they established here. If a policy is fully paid up, the tax deduction is either the replacement value or the donor's cost, whichever is less.

If a policy is not paid up and the donor decides to contribute the premiums, those amounts become deductible as charitable contributions. In either case, the donor gets an immediate tax deduction and substantial estate tax savings later.

Yes. In fact, IRAs and similar pension assets, such as 401(k)s, 403(b)s, and defined contribution plans, as well as non-statutory stock options and deferred compensation, are ideal assets to consider contributing to charity. Such assets, which constitute “income in respect of a decedent” (IRD) under the U.S. Treasury regulations, are the most highly taxed assets at death and are both included in the value of the decedent’s taxable estate and deemed income to the beneficiary. Individuals who designate a charitable recipient as beneficiary of IRD property avoid the income tax that would otherwise be due and generate a corresponding charitable deduction that reduces their taxable estate. In so doing, donors are able to further their philanthropic interests while leaving more to heirs.

Your client may also wish to use IRA assets to establish a charitable legacy during his or her life. Current law permits up to $100,000 in tax-free distributions from individual retirement plans to qualified charitable distributions for individuals who are 70 1/2 or older, and excludes from income up to $100,000 annually in qualified charitable distributions from a traditional or Roth IRA, while counting these distributions toward the minimum distribution requirements that apply to such individuals. While a contribution to a donor-advised fund is not deemed a qualified charitable distribution, and thus is not eligible for this tax-advantaged treatment, contributions to a designated, field-of-interest or unrestricted fund do qualify. By taking advantage of this provision, your clients can see their charitable gifts put to work while reducing their current income tax and the value of their taxable estates. If enacted, the Public Good IRA Rollover Act of 2009 (H.R. 1250 and S. 864) would extend these provision to donor-advised funds, supporting organizations, and private foundations. The bill would also lift the $100,000 cap on distributions and allow planned gifts beginning at age 59 1/2.