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 regulations on this subject, set out in the
Internal Revenue Code, must be carefully followed.
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 and
are never revalued. Annual payments remain the same, whether the assets
appreciate (increase in value) or decline (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.
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.
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
often should I update my will or trust?
These documents should be updated any time your financial or your family
circumstances change. As laws vary from state to state, if you move
you should have an attorney licensed in and familiar with the new state's
laws review your will or trust agreement. It is always wise, even if
there are not any significant changes in your circumstances, to periodically
review these important documents.
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.
How can I fund a charitable gift annuity and how is my income
calculated?
The usual funding sources for a charitable gift annuity are cash
and marketable securities. There can be tax benefits associated with
the gift of appreciated securities (the current market value exceeds
the cost or basis value). As a gift annuity is considered partially
a gift and partially an annuity, part of the gift avoids capital gain
tax entirely. Real estate and other marketable assets may also be used,
but in many cases acceptance of these kinds of assets are often on a
case-by-case basis. Generally, the charity will convert the assets to
cash to fund the annuity.
The income provided you by the annuity is determined by your age
and the age of any additional beneficiary and is calculated using tables
established and filed with regulatory agencies under which the charity
operates its annuity program.
Can I set up a charitable gift annuity and delay the start of
the income until I will more likely need it, such as at my retirement,
when my income is lower?
Yes, the flexibility associated with establishing charitable gift
annuities makes them a popular and effective retirement planning vehicle.
Using a deferred gift annuity, the annuity earnings accumulate on a
tax-deferred basis. Thus the deferred payment annuity accomplishes several
things. First, the donor receives a tax deduction in the year the annuity is established,
which is usually when the donor is in a higher
tax bracket. Secondly, the gift to the charity becomes larger as the
deferred earnings increase the annuity's principal. Finally, since the
deferred payment annuity grows in size while income is deferred, the
ultimate income will be more per year.
Please note, individual financial circumstances
will vary. The information on this site does not constitute legal or
tax advice. As with all tax and estate planning, please consult your
attorney or estate specialist. All material is copyrighted and is for
viewing purposes only. Use of this site signifies your agreement with
the terms of use. The content
in this Planned Giving section has been developed for the Brethren Home
Foundation by Future
Focus. Please report any problems to section
webmaster. Revised: October 11, 2006 10:35.
