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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.
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 would
in theory be 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.
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