Charitable Remainder Trust

Tailored for your investment and charitable giving goals

Of all the ways to provide support to Covenant House, the most sophisticated may be a charitable remainder trust, which can be tailored to meet the widest range of investment needs and charitable giving goals.

Each trust is individually planned, funded and administered. This individual handling allows the greatest flexibility in the assets used to fund the gift, the type and duration of income and the ultimate use of the gift by Covenant House. A charitable remainder trust is a personalized, meaningful contribution.

To help you get started, we have provided the following information to help you decide if a charitable remainder trust is right for you:

Benefits of charitable remainder trusts

Charitable remainder trusts provide income for life to you or someone you designate, after which the trust remainder will go to fund Covenant House's lifesaving programs. But unlike the simpler charitable gift annuity, the payments from a charitable remainder trust can be customized to your needs:

  • Payments can be fixed or variable to grow with the market.
  • Payments can be deferred into the future.
  • Payments can stop after a period of years.
  • Payments can continue to you for life and then be transferred to another person for life (or a period of years).
  • Payment options are almost unlimited to meet your needs.

Cash or publicly traded stock can be used to establish a charitable remainder trust, as can developed or undeveloped real estate, all or part of a principal residence, shares of a closely held corporation, tax-exempt bonds, IRA leftovers or even artwork. Virtually any substantial asset that has appreciated in value can be used to good advantage to fund a charitable remainder trust, thereby avoiding capital gains tax.

Charitable remainder trusts usually provide taxable income with the widest range of payment options to the income recipient. Fixed payments or variable payments designed to grow over the years are among the options. And in special cases, charitable remainder trusts may provide mostly tax-free income to a donor.

Covenant House's charitable remainder trusts receive high-quality administration at no cost to you or to the trust. Low-cost, high-quality asset allocation and investment selection are obtained through the Vanguard Group of mutual funds, with independent evaluation through Morningstar Mutual Fund Service. You can choose from among a wide variety of highly rated, low-cost Vanguard funds for the investment of your trust, or you can leave the investment choice to our Finance Committee.

Types of charitable remainder trusts

Two types of charitable remainder trusts are allowed by law: the unitrust and the annuity trust. They are fundamentally the same except for one significant difference: the way the amount paid to the income beneficiaries is calculated each year.

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 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 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.

Special applications of charitable remainder trusts

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.

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.

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's mission.

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Covenant House Georgia is a 501(c)(3) organization - Tax ID#: 13-3523561 - All donations are tax-deductible