Charitable Remainder Annuity Trust

Your GiftTree path:
You're considering a lifetime gift in partnership with Lawrenceville > Your planning objective is increased income > Your preference is fixed income payments > You want to retain some flexibility in the management of your gift

The charitable remainder annuity trust is an individually managed 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.

Here are some of its benefits:

• 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.
• 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. We 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 for the use you designated when you created the trust.
• 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.

Planning Tip -- Capture the Benefits of High-Yield Tax-Fees

Are you concerned about declining yields in your portfolio of tax-free bonds?

Who Should Be Trustee?

An annuity trust is a separate legal entity administered by a trustee.

Either Lawrencevillecan serve as trustee of your annuity trust, or you or another person or institution can serve as trustee. We currently administer several charitable trusts and do not charge you a fee for our services. (We do ask a minimum gift of $100,000 to establish an annuity trust for which we will serve as trustee.) Alternately, you may wish to follow your or your advisors' investment strategies.

Whichever option you choose, we can share sample trust forms and discuss the details of establishing the annuity trust with you and your advisors.

You can capture high interest rates and still make a gift to Lawrenceville 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 The Lawrenceville School.

Our office 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 Lawrenceville, you decide to place $250,000 of your tax-free bonds into an annuity trust paying income to you and your spouse. What are your benefits?		*This example is based on a factor that changes monthly. Contact our office for a personal illustration based on the latest rates.
Donors	Husband and Wife, 70 and 68	Click here to calculate the benefits an annuity trust would give you.
Asset contributed	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	$100,820
Tax savings	@ 35% rate: $35,287
[1] If the bonds mature or are called, the annuity trust may incur capital gains tax, which will be reflected in your income payments. *This example is based on a Federal Discount Rate of 5.0%.

How Do You Create 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. To save you time and expense, we can provide you with 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 trustee.

Email us, complete the personal illustration form, or call us at (609) 620-6064 so that we can assist you through every step of the process.

Which Gift Plan Works Best for You?*
You may be comparing an annuity trust with other gifts that return income – a charitable gift annuity or a charitable remainder unitrust. Each gift addresses particular financial goals, and you should choose the one that is the best fit for you. Like the annuity trust, the gift annuity pays you fixed income. Because it is a simple obligation and not an individually managed trust, we can often pay you a higher income rate on a gift annuity than we can on an annuity trust. In addition, a gift annuity's income payments come to you partially tax-free, and partially as capital-gains income if you contributed appreciated assets. Unless your annuity trust is invested in tax-free securities, all income will be taxed to you at ordinary income rates. The annuity trust offers management flexibility, multiple beneficiaries and existence for a term of years rather than the beneficiaries' lifetime. The unitrust is even more flexible. In addition, its payout structure allows for income growth over time. We can show you how a unitrust paying 5% income will eventually outperform an annuity trust paying 6 or 7%. The following chart compares the income and tax benefits from these three gifts:* Donors: Husband and Wife, 70 and 68 Asset contributed: $100,000, cash
.	Charitable Gift Annuity	Annuity Trust	Unitrust
Income rate	5.8%	5%	5%
Annual income	$5,800 (fixed)	$5,000 (fixed)	$5,000 (variable)
Tax-free	$3,461	-0-	-0-
Ordinary income	$2,339	$5,000	$5,000
Charitable deduction	$25,943	$36,157	$40,614
*This example is based on a factor that changes monthly. Contact our office for a personal illustration based on the latest rates.

The Lawrenceville School
Office of Planned Giving
2500 Main Street, Hogate Hall or
PO Box 6125
Lawrenceville, NJ 08648
(609) 620-6064 | Fax: (609) 895-2148
E-mail: scushmor@lawrenceville.org