Charitable Remainder Annuity Trust

A Charitable Remainder Annuity Trust shares many common features with the Unitrust.  The basic difference is that it pays a lifetime income based on the initial value of the assets funding the trust.  Like the Unitrust, the payout rate must be at least 5% of the initial fair market value of the gift.  So, if a donor uses $100,000 in appreciated securities to establish an Annuity Trust and stipulates a 7% payout rate, his/her annual income would be $7,000 each year, regardless of the trust’s performance.  This type of situation gives him/her the security of knowing from year to year what his/her income will be.

If you establish an Annuity Trust, you will receive a deduction for the present value of the charitable remainder interest, and you can 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.  (Additional contributions to this trust are not allowed.)

Donor Benefits

  • Ability to provide lifetime income for yourself or other named beneficiaries as well as make a significant charitable gift
  • Fixed payout feature offers the security of a set lifetime income
  • Savings on estate taxes
  • No capital gains tax paid by Annuity Trust
  • Realize an immediate charitable tax deduction
  • Increase income by converting low yield assets