Charitable Remainder Annuity Trust: FAQs

Who can serve as trustee of my annuity trust?

In working with your team of professional advisors, a number of choices are available as to who would be the best trustee for you. Please contact us to discuss this further.

How would the assets in my annuity trust be invested?

Typically such a trust is invested in a balanced portfolio that is designed to produce both income and growth over the term of the trust. An annuity trust may also hold tax-free bonds.

Is it better to give cash or appreciated securities?

Gifts of cash or appreciated property yield the same result for tax deduction purposes. However, gifts of appreciated property have the added value of avoiding capital gains taxes.

How will income from my annuity trust be taxed?

Your income will be taxed according to the type of investments and payout rate of the trust. You will usually pay tax at the ordinary income level on any ordinary income that is distributed, up to your full payment. The rest of your income will be taxed at the next lowest rate, usually as capital gains, then as tax-free return of principal. If you desire to know your taxation rates when you fund your life income gift, you might want to consider a charitable gift annuity or deferred gift annuity.

Can I name my children as income beneficiaries?

Yes, if you wish to provide income to children or grandchildren for a specific number of years — for example, for tuition payments. For lifetime income payments, it will depend on the age(s) of any children you name as income beneficiaries. Our interest in the trust must be at least 10% of the value of the assets donated to the trust. In the case of lifetime income payments, this interest is calculated using the life expectancies of the income beneficiaries. Thus, the younger your children, the longer their life expectancy, and the smaller will be the charitable remainder value. Even younger adult children may disqualify the trust.

What are the tax deduction implications of my charitable remainder trust?

A charitable remainder annuity trust is a powerful tool that can save you income, capital gain, estate and inheritance taxes depending on your circumstances and state of domicile. A qualified advisor is crucial to assist you in maximizing these benefits.


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