A Charitable Trust Might be for You
by Bill Hurd '61
A Charitable Remainder Unitrust (CRUT) might be a great investment for you. The benefits of a CRUT are usually greater for the donor and family than for Clarkson. The IRS requires that the charity is expected to get at least ten percent of the net present value of the donated amount. So when all of the income beneficiaries are gone, Clarkson will get the residual, which is expected to be at least ten percent of the original donation. Personally, I feel that the amount that goes to Clarkson after the donor and family no longer have need for the funds is a small price to pay for the many benefits of the trust. What are some of the benefits to the donor and other beneficiaries?
- The trust provides secure lifetime income for the beneficiaries. The annual income must be at least five percent of the previous year-end value of the trust. The payout may be higher, and higher payouts are often used when all beneficiaries are quite old. There are also ways to reduce or eliminate the payout in the early years of the trust if it is desired to build principal.
- The trust is a great way to provide for a family. The beneficiary structure can be quite complicated. For example, suppose you want to provide for yourself, your spouse, your parents and your children. You can have a chain of successive beneficiaries: first yourself and your spouse as long as either lives, then any parents that outlive you, and then the children. This works so long as the joint life expectancy is not so long that the charity will not receive the required ten percent (statistically).
- The trustee and the investment management can be controlled by the donor. For example, the donor could also be the trustee for as long as desired, and then Clarkson or a trust company could become the trustee. If Clarkson is the trustee, the trustee fees will be quite low, and the investments will be professionally managed by a bank trust department.
- There are major tax advantages. There is an immediate charitable deduction for the share that eventually goes to Clarkson. A big advantage is that all investment gains over the life of the trust are tax exempt. This alone is likely to override the amount that goes to Clarkson. A portion of each distribution is likely to be either taxed as capital gains, or tax free.
- There can be major advantages if the trust is funded with appreciated property, such as stocks, real estate or even a business. This defers the capital gains tax until the gains are received as part of the annual distributions. Typically the funding asset is sold by the trust, and the funds are reinvested in a diversified portfolio. This is a great way to diversify away from a single large stock investment. It is also a great way to get away from the burden of managing real estate or a business. And it often converts an investment that produces little income into a secure and professionally managed investment with a steady income stream.
I think that a CRUT is a great investment and tax savings vehicle, independent of the charitable benefits. It is great for someone who is trying to unwind complicated investments while minimizing taxes. It is great for someone who usually keeps money in low yielding insured accounts, but who is willing to seek better return with professional management. And it is great for someone who desires security for self and family.
If you would like more information, contact Sal Cania, director of gift planning at Clarkson or visit www.clarkson.edu/crt. Try the Clarkson Gift-with-income Calculator at www.clarkson.edu/gwicalc . This will enable you to calculate the immediate tax deduction and the initial annual payout. If you'd like to learn more confidentially before contacting Clarkson, I’m happy for you to call me at 818-325-4492 or email me at Bill@BillHurd.com.
Bill Hurd ’61 is a Certified Specialist in Planned Giving and enjoys volunteering his time to confidentially help Clarkson alumni and friends include Clarkson in their plans.
Read Bill's article, "Family First with a Charitable Trust"
Read Bill's article, "Trust Your Children or Trust a Trust"
Read Bill's article, "Take Care of Yourself First"
Read Bill's article, "Retirement Income for Financial Conservatives"
Bill, with rescue dogs Feliz & Bijou
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