The charitable remainder annuity trust is managed as an individual trust that combines regular, predictable income with some flexibility in management and investment.

• The annuity trust pays its beneficiaries – you, your spouse, family members, or other individuals – fixed-dollar income or a fixed percentage of the initial value of the assets that funded the trust.
• Income from your annuity trust can be paid to you and your other beneficiaries for lifetime or for a term of up to 20 years.
• No upfront capital gains tax is payable if you fund your annuity trust with appreciated property. So, you can contribute appreciated but low-yielding assets and put the entire value of your gift to work generating higher income for you.
• Besides avoiding capital gains tax, you also receive a charitable income tax deduction when you create an annuity trust. Your deduction will be based on the full fair market value of the assets you contributed, reduced by the present value of the income interest you retained. Your charity can generate sample deduction calculations for your planning purposes.
• The charitable income tax deduction for an annuity trust is usually higher than that for a unitrust, because the unitrust is likely to pay out more income to the beneficiaries over time. Your charity will happily provide deduction comparisons for you and your advisors.
• When your annuity trust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be available to your charity to use for the project you designated when you created the trust.
• Your charity will give you gift credit for the remainder value of your annuity trust – the same amount as the charitable income tax deduction, explained above.
• Annuity trusts can’t be flexible in their payout as unitrusts can. Therefore they can’t accept gifts of illiquid assets, invest solely for growth, or pay out net income only.
• Many charities can serve as the trustee of an annuity trust, or you or a financial advisor or institution can serve. While some charities will provide trustee services free of charge, there may be a nominal administrative fee applied. Most charities will ask a minimum gift, typically $50,000 to $100,000, to establish an annuity trust which they will trustee.
• Consult with the development office of your favourite charity to determine if the charity maintains a minimum age requirement for annuity trust beneficiaries

Planning Tip – Capture the Benefits of High-Yield Tax-Frees

Are you concerned about declining yields in your portfolio of tax-free bonds? You can capture high interest rates and still make a gift to your favorite charity by placing one or more of your older bonds into an annuity trust. The trust will hold the bonds, and pass their tax-free income through to you and your beneficiaries. In addition, you will receive a charitable income tax deduction based on the market value of the bonds you donated, minus the present value of the income interest you retained.

The effect is to make one asset perform two tasks for you – pay you high tax-free income and also generate a charitable deduction. Meanwhile, your gift has increased the long-term financial strength of your favorite charity.

Note that if the bonds mature or are called while they are in your annuity trust, the trust may well incur capital gains tax on the redemption, which will be reflected in your income payments.

Your charity can give you and your advisors more information on this annuity trust planning option.

.	Example Your portfolio contains fixed-income securities and many tax-free bonds. As your gift to your favorite charity, you decide to place $250,000 of your tax-free bonds into an annuity trust paying income to you and your husband. What are your benefits?
.	Donors	Husband and Wife, 70 and 68	Click here to calculate the benefits an annuity trust would give you.
.	Asset contributes	Tax-free bonds
.	Amount contributed	Fair market value $250,000
.	Cost basis	$125,000
.	Income rate	5%
.	Annual income	$12,500 (tax-free)[1]
.	Charitable deduction	$107,924
.	Tax savings	@ 35% rate: $37,773
	[1] If the bonds mature or are called, the annuity trust may incur capital gains tax, which will be reflected in your income payments.

Tips on Creating an Annuity Trust:

Setting up a charitable remainder annuity trust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. Your charity will be able to provide an initial draft of the annuity trust agreement for review by you and your attorney. Once your trust agreement is signed, you can “fund” your annuity trust by transferring assets to your charity or to another appointed trustee.

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