Charitable Remainder Trusts

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• Annuity Trust

  The annuity trust provides fixed payments of the same amount each year. The amount is set on the date of the gift. The annuity trust is attractive in situations where the trust will exist for a relatively short period of time. In these cases, the predictability of the fixed payments is more important than is the eroding effect of inflation over the years.

• Unitrust

  Unitrust payments will vary from year to year. The amount of payment in any one year is based on the value of the assets in the trust on January 1 of that year. Each January 1, the assets are revalued and multiplied by the percentage payment rate stated in the trust agreement to determine the “unitrust amount” for that year. This unitrust amount provides great flexibility to the unitrust. A lower-percentage-rate unitrust will tend to grow faster over the years, providing increasing payments to the donor in the years ahead. The opportunity for growth is the reason a unitrust is often the recommended type of charitable remainder trust for a donor under age 65. The growth opportunity is enhanced because the trust assets compound tax-free.

  A unique feature of the unitrust is that it can accept additional gifts. This feature is useful in order to create a retirement buildup unitrust, where additions each year build up a substantial retirement income stream.

  A special case of the unitrust is called a net income unitrust. In this case, the recipient receives the lesser of the unitrust amount or the actual income earned by the trust investments. This can be useful in the case of a retirement buildup unitrust, where the retirement income is to be deferred for several years, or in the case of a trust being funded with an illiquid asset such as unimproved real estate.

  The great flexibility of a unitrust allows a donor to secure very interesting benefits. You can use appreciated stock compounded tax-free to pay the future college tuition of grandchildren, plus take a substantial income tax deduction in the year of your gift. This is one of many opportunities. Please call or email us to discuss your particular situation.

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• Wealth replacement trust

  A popular charitable giving plan often proposed by financial planners, the wealth replacement trust combines a charitable remainder trust with a life insurance trust to make a substantial charitable gift at a reduced cost to your heirs. It works by using the tax and income benefits from the charitable remainder trust to purchase life insurance that ultimately replaces the charitable remainder trust assets for the benefit of your heirs. By using an insurance trust, gift or estate tax is minimized or avoided, the cost of your gift to your heirs is reduced and you have made a significant contribution to Covenant House New Jersey.

• Retirement buildup unitrust

  This trust is often used by donors in their late 40s and early 50s to enhance their retirement income stream. Through a combination of deferring income until retirement, tax-free compounding and annual contributions of appreciated securities, a charitable remainder unitrust can become a substantial part of a retirement plan.

• Term-of-years annuity trust

  An annuity trust can be used to provide a fixed payment stream for a set number of years. The appreciated assets from these trusts have been used to provide college tuition for grandchildren. A rate can be set higher than would be allowed for lifetime payments. This type of trust has also been used to maximize the payment rate and charitable deduction when a terminal illness indicates you may not live to your normal life expectancy.

• IRA leftovers testamentary charitable remainder trust

  The amount of your IRA that remains after your death is an asset that may be subject to very heavy taxation. It can be subject to both estate tax and income tax payable by the ultimate recipient. Charitable remainder trusts have served a growing role as recipients of these distributions after death. The distributions are received without being reduced by the accrued income tax. Estate tax is offset by an estate tax deduction. The trust assets provide payments to heirs based on the full value of the distribution, after which the remainder passes to Covenant House New Jersey.

• Unitrust to transfer a family business

  In a closely held (chapter C) corporation held by older and younger generations of a family, the unitrust can be used to effectively transfer ownership to the younger generation. The older generation contributes company stock to a charitable remainder trust to provide themselves with retirement income, an income tax deduction and capital gains tax relief. When the corporation purchases the older generation’s stock from the trust, the percentage ownership of the corporation by the younger generation is increased.

  These special applications suggest the broad variety of goals that can be reached with a charitable remainder trust and illustrate how it may be tailored to meet your special needs while still making a tremendous contribution to Covenant House New Jersey’s mission.