|
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. 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.
 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.
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 gains tax entirely. Real estate
and other marketable assets may also be used. 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, there is flexibility in the establishing of charitable
gift annuities that make 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.
|
