Chester County

Chester County

COMMUNITY FOUNDATION

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Gift Annuity

General Information

Planned Giving

Charitable Remainder Trusts

“The greatest use of life

is to spend it for something that will outlast us.”

1.Illustration of Tax Effects on Charitable Trusts

Most people, whether or not they consider themselves to be charitably inclined, regularly give away much of their money and resources through taxes. Charitable trusts are a way for donors to redirect some of their money to programs and priorities they care about. There are several types of Charitable Remainder Trusts:

CRAT: Charitable Remainder Annuity Trust

CRUT: Charitable Remainder Unitrust

CLAT: Charitable Lead Annuity Trust

CLUT: Charitable Lead Unitrust

Here is an illustration of the tax effects on several types of Charitable Trusts. The assumptions are based on a $1,000,000 gift and 6% annual growth. The applicable federal estate tax rate is 49% and the IRS 7520 rate is 3.8%.

ILLUSTRATION OF TAX EFFECTS

SCENARIO	TAX DUE	BENEFICIARY RECEIVES	CHARITY RECEIVES	TOTAL ASSETS TRANSFERRED
Outright Transfer Amount: $1,000,000	$490,000	$510,000	$0	$510,000
Transfer to CRAT Amount: $1,000,000	$338,938	$50,000 per year for 20 years ($1,000,000)	$1,367,856 at end of 20 year period	$2,367,856
Transfer to CRUT Amount: $1,000,000	$314,339	5% of trust balance for 20 years ($1,069,378)	$1,149,713 at end of 20 year period	$2,219,091
Transfer to CLAT Amount: $1,000,000	$151,062	$1,367,856 at end of 20 year period	$50,000 per year for 20 years ($1,000,000)	$2,367,856
Transfer to CLUT Amount: $1,000,000	$182,564	$1,220,190 at end of 20 year period	5% of trust balance for 20 years ($1,100,949)	$2,321,139

The Chester County Community Foundation thanks Miguel D. Pena, Esq., of Gawthrop, Greenwood & Halsted, P.C. for allowing us to use this chart he developed.

2. What is a Charitable Remainder Trust?

· A donor transfers cash or equities irrevocably to a trust.

· The trust is invested and managed by the Community Foundation.

· The donor receives either fixed or fluctuating income payments for life.

· When no longer needed by the donor, the remainder goes to a Fund at the Community

Foundation, as designated by the donor.

· This is a good opportunity for a donor to make a gift of assets that have increased in value

but earn little income. By funding the trust with these assets, the donor can receive an income

without paying capital gains tax. Cash may also be used to fund the trust.

· Tax Consequences: The donor receives a current income, gift, or estate tax deduction

for the present value of the charitable remainder interest. Gifts of cash are deductible up to 50%

of the donor’s adjusted gross income with a five year carryover. Gifts of appreciated property

Can be deducted up to 30% of the donor’s adjusted gross income with a five year

carryover. The donor minimizes capital gains tax if the gift is made with appreciated property.

3. What is a Charitable Lead Trust?

The Community Foundation can also administer Charitable Lead Trusts, which are similar:

· A donor places assets in a trust for a set number of years.

· A CCCF Fund receives annual payments from the trust for a certain number of years.

· When the trust terminates, the trust principal is returned to the donor or

distributed to heirs.

· Tax Consequences: Donors make significant charitable gifts in the near term while

transferring substantial assets to beneficiaries later. The delay in the receipt of funds allows

them to be transferred at a significantly lower gift or estate tax cost. The estate receives an

income tax deduction for the present value of future payments to the CCCF Fund; the estate

is taxed on the trust income, whether or not it is paid to a charitable beneficiary; and the donor

receives a gift or estate tax deduction for the value of the charitable interest.

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