< Pooled Income Fund 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.
The Detroit Zoo was honored with a Significant
Achievement Award by the American Zoo and Aquarium Association
for its long-term propagation program for the Emperor Newt,
a salamander which is known to reproduce in only one small
province in China. |
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.
The Detroit Zoo's National
Amphibian Conservation Center is a place of conservation,
learning and discovery where visitors may experience the
exotic world of these fragile creatures. |
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.
A film crew documents polar
bear behavior at the Detroit Zoo's Arctic Ring of Life for
Animal Planet's Ultimate Zoos television series.
. |
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.
Questions about the Pooled Income Fund
Is there a limit on the amount of charitable deduction
that can be claimed for federal estate tax purposes ?
No. It is unlimited.
How does the rate of return affect the size of the income
tax charitable contribution deduction?
The lower the rate of return, the higher the deduction will be.
Who can receive income earned by the Pooled Income Fund?
1. YOU can receive quarterly income or the rest of your life.
2. YOUR DESIGNATED BENEFICIARY can receive quarterly income for
rest of his or her life.
3. ANY TWO PERSONS can receive quarterly income for the rest of
their lives, concurrently and/or consecutively:
a. you and another
b. two others
How is the income generated by the Pooled Income Fund treated
for tax purposes?
All of your income from the Fund will be taxed to you as ordinary
income.
Isn't a bequest just as good as a contribution to the Pooled
Income Fund?
Certainly, The Detroit Zoological Society will always appreciate
gifts made in the form of bequests. However, when you make a contribution
to the Pooled Income Fund, the gift works much like a bequest
but with these additional benefits to you during your lifetime:
- You receive a life income.
- You may increase your spendable income.
- You can avoid capital gains tax.
- You are allowed an income tax charitable deduction.
- You can save estate taxes and estate settlement costs.
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