Under the Charitable Remainder Annuity Trust arrangement, you irrevocably transfer cash or securities to a trustee, like the United Methodist Foundation. You retain the right to a specified annuity for a definite or indefinite time period. If definite, the term cannot exceed 20 years. If indefinite, you may choose to have the trust pay an income for the lifetime of you and your spouse.
You decide on the fixed amount you want to receive each year, payable in periodic installments. The fixed amount cannot be less than 5% of the initial fair market value of the trust assets. You will receive an income tax deduction for the present value of the remainder interest. If you transfer an appreciated asset to the trust, you will not be taxed on the unrealized gain. Because the annuity is a fixed amount, it is unaffected by the trust's income. Income in excess of the annuity amount accrues to the charity.
Both the annuity trust and the unitrust have some very favorable benefits. You receive an income tax deduction and an estate tax deduction. Both enable you to avoid tax on appreciated assets used to fund the trust. Both allow you to increase income from a low-yield holding. With the income and estate tax savings, gifts can be made at a lower cost. You will also have freedom from investment responsibilities. The annuity trust provides a fixed and certain dollar income for life and the unitrust is a hedge against inflation.
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