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The
Charitable Remainder Trust
A charitable remainder trust is a trust into which a donor irrevocably places
assets in exchange for an income either for life or for a term of years.
As the donor, you may fund the trust with cash, securities or real estate.
The minimum value of your gift must be $50,000. At the end of the trust
term or when all income beneficiaries pass away, the remaining principal
transfers directly to Temple University as the remainder beneficiary
for any use you designate. The donor receives an immediate income tax
deduction for this remainder value. You will receive income at a rate to which you and Temple agree, with a minimum
of 5% of the initial trust principal. There are two basic types of charitable
remainder trusts. They are: The Charitable Unitrust - trust income is based on a fixed percentage
of the fair market value of the trust, revalued annually. Your income
will vary from year to year. The Charitable Annuity Trust - trust income is based on a fixed dollar
amount. Your annual income will remain fixed for the life of the trust.
Here are illustrations of how these trusts work:
Illustration A:
Mr. and Mrs. K, ages 68 and 65, contribute $100,000 (with a cost basis
of $10,000) of their stock to a Temple Charitable Unitrust that will
pay them for life a 7% return on the trust principal, revalued annually,
or $7,000 the first year of the trust. This is a vast improvement over
the 2% dividend that the K's were collecting from this stock. The
gift produces an immediate income tax deduction of $25,542, and the
K's also save $18,000 in capital gains taxes because the trust is
not subject to this tax. These tax savings, coupled with their income,
produces an equivalent yield of 9.4% on this investment in Temple's
future. The K's have instructed that the remainder principal of
their gift will fund an endowment scholarship fund in their names.
Illustration B:
Mr. Z, 70 years old, likes to invest in tax-free municipal bonds. He
loves the idea of tax-free income. He also has a great fondness for
Temple and wants to do something substantial for the University. He
decides to transfer $300,000 of his tax-free bonds directly to a charitable
annuity trust that will pay him a fixed dollar rate of 5% of principal
for life or $15,000 annually. This is very close to the income that
he is currently receiving from these bonds. The trust will retain these
bonds and continue to pay Mr. Z his tax-free income, but Mr. Z in return
has earned a charitable tax deduction for the trusts remainder value
of $156,399. This produces further tax savings that give Mr. K an equivalent
yield of 5.9%.
Illustration C:
Dr. and Mrs. L, ages 67 and 65, are successful individuals who have
acquired a substantial estate, putting them in the 45% estate tax bracket.
They have three children whom they want to benefit from their bounty,
but they also want to leave a legacy to Temple. They decide to transfer
their vacation home worth $350,000 into a charitable unitrust. Their
cost basis in this property is $100,000. The trust will pay the L's
6.5% of the trust principal, revalued once a year. By taking this step
the L's have accomplished the following:
- They have made a significant gift for a future endowment at Temple.
- They have taken a highly appreciated property, avoided a capital
gains tax of $62,500 and increased their income substantially. The
first-year income from this trust will be approximately $22,750.
- With a portion of their increased income, the L's will make annual
gifts to their children so that they can purchase a survivorship life
insurance policy on their lives with a face value of $350,000.
- The L's have removed a substantial asset from their estate
reducing their estate taxes by $135,000.
- The L's will receive an immediate income tax deduction of $98,140,
which they can spread out over six tax years if they need to.
With your permission, Temple will recognize your gift through membership
in the University's Acres
of Diamonds Circle, a distinctive group of fellow alumni/ae and
friends who have made a planned gift to the University.
If you would like to see an illustration that is personalized for
your particular circumstances, contact Jerry Rohrbach, Director of Planned
Giving, at 215-204-5741 or 800-822-6957 or e-mail
jerry.rohrbach@temple.edu. When requesting information via e-mail, please
indicate the birth date(s) of the income beneficiary(ies).
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