You can create a charitable remainder trust by irrevocably transferring an asset (cash, appreciated securities, appreciated real estate, or tangible personal property) to a trustee such as the American Baptist Foundation. The trust can be for the lives of one or two persons or can be for a specific term of years.
The trust can pay income in a variety of ways:
- to you only;
- to any other person only; to any two persons; and
- to more than two persons (such as children) if the trust is for a specific number of years.
At the death of the last beneficiary, or at the end of the term of years, the remainder will go to your congregation or any ministry of the church you name. The remainder can also be used to establish a permanent endowment with the American Baptist Foundation. The annual payments from such an endowment can be sent to your congregation or any part of the church you choose.
Tax considerations are also important. You will receive a charitable deduction for income tax for a portion of the trust value. The amount of the deduction varies depending on the payout percentage, the amount placed in the trust and the ages of the beneficiaries or the number of years of the trust. If you use long-term appreciated securities to fund the trust, you have the additional benefit of avoiding the capital gains tax on the appreciation in those securities. The same is true for appreciated real estate. The assets transferred into the trust are removed from your estate and are not subject to federal or state estate tax or probate costs.
The possible benefits of such a life income agreement are:
- satisfaction of having made a planned gift to your church;
- security of income for yourself and/or others;
- potential hedge against inflation (with a unitrust);
- income tax savings;
- capital gains tax savings;
- estate tax savings; and
- probate cost savings.
There are two forms of charitable remainder trusts – charitable remainder unitrust and charitable remainder annuity trust.