CHARITABLE REMAINDER ANNUITY TRUSTCHARITABLE REMAINDER ANNUITY TRUST

What is a Charitable Remainder Annuity Trust?

A CRAT is a trust that makes fixed, regular payments to the donor or other named income recipient. The trust can be created with cash and/or publicly traded securities/mutual funds.  These payments can be made for life, a term of up to 20 years or both. The amount remaining in the trust at the end of the trust’s term will go to the donor's choice of funds at the LCF, benefitting charities or areas of charitable work recommended by the donor.

Target Audience

  • Older clients (70+) seeking a fixed income stream.
  • Fiscally conservative clients interested in converting an existing asset into an ongoing stream of income.
  • Clients who wish to give appreciated stock and bypass associated gains.
  • Clients who have maxed out qualified retirement plan contributions, but still need additional retirement income.
  • Clients with stock who are seeking ongoing income for long-term care or wealth replacement insurance premiums.

Tax and Financial Benefits of Creating a Charitable Remainder Annuity Trust

  • The trust beneficiary receives fixed payments for life, or for a fixed term of years.
  • The donor receives a charitable income tax deduction in the year of the gift.
    • For gifts of cash, the annual deduction limit is 50% of the donor’s AGI.
    • For gifts of long-term appreciated securities, the annual deduction limit is 30% of the donor’s AGI.
  • Unused charitable deductions may be carried over an additional 5 years.
  • The annuity trust sells appreciated assets tax-free – 100% of the gift is reinvested to produce income.
  • The gift minimum is $50,000. While additional gifts are not permitted to the trust, the donor may create another trust to receive an additional income stream.

Benefits to you, the Professional Advisor

LCF will support you with a full range of charitable products and services, and you'll be compensated for your efforts by Thrivent or American Funds. (details)

 

More about Charitable Remainder Annuity Trusts

Annuity trust payout rate. In determining a payout rate, the LCF looks to various factors, including the current economy, the prevailing IRS discount rate and the age of the trust income beneficiaries. Once the percentage has been set in the signed trust document, it cannot be changed. In the event of an extended downturn in the investment markets, it’s possible that a trust with a higher trust payout rate may exhaust the trust principal prior to the expected termination of the trust. Payments are not guaranteed beyond the exhaustion of the trust’s assets.

Payment recipients. Payments can be paid to the donor, a relative or friend, and are taxable as income. There may be gift/estate tax consequences if someone other than the donor or the donor’s spouse is named as an income recipient.

How to Establish a Charitable Remainder Annuity Trust at the LCF

  1. Request a personalized illustration for your client using our request form, or call 800-365-4172 and speak to a Gift Planner.  To create a customized illustration for your client, we will need the following information:
    • Client's name, birthdate and tax bracket
    • Proposed gift amount, including cost basis.
  2. The Foundation sends you an illustration packet to review with your client.
  3. If your client wishes to proceed and establish an annuity trust, complete and return the Charitable Remainder Trust Application, IRS Form W-9 and Fund Workbook included in the illustration packet.
  4. If the client is giving cash, please do not send any money at this time.
  5. If the client wishes to give stock, include copies of either the stock certificates or the most recent brokerage statement. LCF will contact you with specific instructions on how to transfer the stock.

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