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PLANNED GIVING HOME |
Frequently Asked Questions
If a trust agreement is established as irrevocable, it means that it
can't be revoked (broken) except under unusual circumstances.
Why would anyone want an irrevocable trust?
There are always specific reasons for making an irrevocable
trust agreement. Perhaps it involves a family business where some
of the family members are getting on in years and the family wants
to make certain that management continues to run smoothly even
if hindrances, such as senility, enter the picture.
Many times the reasons for an irrevocable trust involve estate and/or income tax avoidance. In order to be successful in such avoidance, the trustor must not have any direct or indirect power or control over the trust property or income. The Internal Revenue Code and the accompanying Regulations should be carefully followed when considering irrevocable trusts.
What
happens to my assets in a trust for a charity if the charity goes
out of business before the expiration of the trust?
Your trustee is authorized to name a substitute, if that
is the sole charity.
Can I use my insurance to benefit charitable organizations?
Yes. This is an area overlooked by many. You can name
one or more charities as alternate or as primary beneficiary.
Furthermore, if you no longer need the policy proceeds in your
estate for use now, you can transfer ownership of the policy to
the charity or charities. If the policy has cash loan value, the
charity can draw this out and use it. In this case, you not only
receive a charitable gift deduction, but any additional premiums
you pay are tax deductible for you now. And, on your death, the
charity receives the balance of the policy proceeds and none of
it is included in your estate for tax purposes.
Should I name a charity as trustee of my charitable remainder
trust?
This is often done if the organization is qualified to
so act under local law. The organization's representatives can
satisfy you in that regard. Often they will serve without fee,
which is an additional incentive.
How can I fund a charitable remainder trust and how is
my income calculated?
The usual funding sources for a charitable remainder trust
are cash and marketable securities. Real estate and other marketable
assets may also be used, though not all charities accept real
property such as real estate. Generally, the charity will convert
the assets to cash to fund the trust. Each charitable organization
will establish what assets it will accept, as there are often
time and conversion expenses to assets other than cash and marketable
securities.
The income from the trust is based on an annual percentage of
the value of the trust. The percentage must be at least 5% (but
may be more) of the fair market value of the trust assets. Note
the valuation difference in the next question between an annuity
trust and a unitrust.
Federal and state income tax deductions are available in the tax year the trust is created. The deductions are based on the age of the donor and the amount (value) placed in the trust. Please check with your tax advisor or development officer concerning the calculation of the deduction.
If
the trust is funded with cash, an amount up to 50% of the donor's
adjusted gross income in the tax year the trust was established
is tax deductible. If appreciated assets such as securities or
real estate are used, the percentage of gross income that is deductible
is up to 30%. If the value of the trust exceeds the percentage
limits of adjustable gross income, the excess may be carried over
after the tax year the trust was established and used as deductions
in subsequent years (not more than five additional years).
What is the difference between a charitable remainder unitrust
and a charitable remainder annuity trust?
The major difference is in the valuation of the assets
of the trust, which establishes part of the calculation for the
determination of the amount of income received by the income beneficiary(-ies).
The annuity assets are valued at the time the assets are placed
in the trust. The trust assets are never revalued. Annual payments
remain the same, whether the assets appreciate (increase in value)
or depreciate (lose value).
The
assets in the unitrust are revalued annually. If the trust assets
appreciate, the payment to the income beneficiary(-ies) will increase.
If the trust assets depreciate, the payment will decrease.
The Benedictine Health Foundation's staff will gladly work with your legal advisor or estate planner to help you create the best plan for your gift.
