Charitable Remainder Trusts

Under a charitable remainder trust, cash or other assets are irrevocably transferred to a trustee, who manages the assets and pays income to the donor or beneficiary for life or a term of years.

The payments can be a fixed dollar amount (an annuity trust) or a percentage of the principal (a unitrust). At the end of the trust term, The Seattle Lighthouse for the Blind Foundation receives the remaining principal, to be used according to the donor’s recommendations.

The trust has substantial financial and charitable benefits:

• The donor receives a tax deduction for the present value of the projected remainder -- applied to income if the trust is established during the donor’s lifetime or applied to the estate if the trust is established in a will. (The amount of the deduction depends on the pay-out arrangements, the length of the trust term and the discount rate under the U.S. tax code.)
• The donor receives an income tax deduction. The donor may deduct up to 50 percent of adjusted gross income for cash gifts, and up to 30 percent of adjusted gross income for gifts of other assets in the first year; the excess may be carried forward for up to five additional years. (The exact amount of the deduction depends on the age(s) of the person(s) receiving payments, the annuity rate and the discount rate under the U.S. tax code.)
• The donor pays no tax on the capital gain at the time long-term appreciated property, such as stock or real estate, is contributed. The trust is thus an efficient way to convert low- or non-income-generating assets into increased cash flow.
• Donors already contributing the maximum to their retirement plans may supplement these plans using a charitable remainder unitrust, effectively deferring payments until later.

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