Charitable Trusts

Charitable trusts allow you to "donate the tree, and keep the fruit" or "donate the fruit, and keep the tree." A valuable option in estate planning, charitable trusts provide maximum flexibility for giving a gift and securing a life income.

Charitable Lead Trust

With a charitable lead trust, you donate income to charity and retain the principal. Through the trust, you determine how much will be paid to Grand Rapids Community Foundation and for how long. The principle that remains after the trust terminates will revert back to you or pass to another designated individual. You may choose between variable or fixed income payments.

A charitable lead trust can substantially reduce the amount of gift and estate taxes because you or your estate can claim a charitable deduction for the Community Foundation's charitable interest in the income payments.

Key benefits to remember:

Retain and transfer appreciated property to family members at low cost
Reduce the burden of gift taxes or probate and estate taxes on your property
Achieve a more favorable income tax position depending on the characteristics of the trust
Can be extremely useful to implement a year in which you have an unusually large amount of taxable income and use a very large current deduction

Charitable Remainder Trusts

A charitable remainder trust (CRT) is one of the most flexible ways to give to Grand Rapids Community Foundation. With a charitable remainder trust, you donate an asset to charity and retain the income for life. Because the CRT is charitable, it can sell highly appreciated property without paying capital gains taxes, allowing the full amount of the asset to work. You may choose between fixed or variable income.

Fixed Payments: Charitable Remainder Annuity Trust

A charitable remainder annuity trust pays a lifetime income based on the initial value of the assets funding the trust. The payout rate must be at least 5 percent of the initial fair market value of the gift.

If you establish an annuity trust, you will receive a deduction for the present value of the charitable remainder interest and avoid capital gain tax on the transfer of appreciated long-term securities. Typically, the allowable charitable deduction from an annuity trust is slightly greater than from a unitrust when the initial value and cost basis of the assets gifted are equal.

Key benefits to remember:

Provide lifetime income for yourself or other named beneficiaries
Make a significant charitable gift
Realize the security of a guaranteed lifetime income
Save on estate taxes
Avoid immediate capital gains tax when original asset is sold
Realize a charitable tax deduction
Increase income by converting low yield assets

Variable Payments: Charitable Remainder Unitrust

The percentage payment you receive from a Unitrust varies from year to year as the fair market value of your trust assets fluctuates. If the value of the trust assets increases, so too would your payments. You must specify a payment rate (at least 5 percent by law). If your trust assets outperform that rate, the extra gains would be reinvested, eventually increasing your principal and payments. You may view this as a possible hedge against inflation, assuming growth in value of the trust assets is somewhat comparable to the inflation rate. The reverse, however, is also true. If your trust earns less than the rate you specify, you will still be paid that same percentage. This could erode your principal and lower your payments.

To emphasize asset growth and a higher charitable deduction, establish a lower trust payout rate. If you select a higher trust payout rate, you'll receive a greater annual payment and lower charitable deduction.

You can fund a unitrust with cash or, ideally, with long-term, highly appreciated securities. The charitable deduction you're allowed is based on the fair market value of the assets (even though you may have purchased them for much less), the payout rate you choose, the number of individual beneficiaries you specify, and the age of the beneficiaries or the term of years the trust is established. Your tax, legal and financial planning counsel can help you assess the options best suited to your situation.

Key benefits to remember: