Charitable Remainder Trusts

A charitable remainder trust is an irrevocable gift arrangement that provides income to the donor and/or a designated beneficiary. Gifts may be in the form of cash, securities, or in certain instances, other assets such as real estate. There are different types of charitable remainder trusts, but they all share certain attributes:

  • They are individually-managed portfolios that can be designed to meet the financial goals of the donor.
  • The donor is entitled to a charitable deduction for the present value of the charity's remainder interest. (This amount is determined by IRS tables and based on such factors as the market value of the gift, the payout rate and the age of the income beneficiary/ies.)
  • Income payments are based on a fixed percentage of the trust and may be made for the life of the income beneficiary/ies or a specified term of years, not to exceed twenty. (The payout percentage is determined by the donor and trustee and becomes fixed upon the trust's establishment; by law, it must be at least 5%.)
  • When the trust terminates, the trust principal is released for use by the designated charity/ies. A donor may name more than one charity as the ultimate beneficiary.
  • There is no capital gains tax upon the transfer of gifts of appreciated stock or property.
  • Income payments to the beneficiary are taxable at his or her ordinary income rate, the capital gains rate or may be tax-exempt, depending on the trust investments. There is no tax for any income that is considered return of principal.

Charitable remainder unitrusts provide an annual payment based on a fixed percentage of the net fair market value of the trust assets as valued annually. Thus, payments will vary from year to year depending on the investment performance of the trust. While this strategy allows the beneficiary to increase his or her income each year as the value of the trust assets grows, it is important to remember that unitrust payments could also decrease if there is a drop in value. A donor may make additional gifts to the unitrust in future years.

Alternatively, charitable annuity trusts provide a fixed amount of income to the beneficiary each year. The stated dollar amount must be equal to a sum not less than 5% of the initial fair market value of the gift funding the trust. Some people appreciate the certainty of knowing exactly how much money they will receive from the trust each year; however, this trust arrangement does not provide any possible hedge against inflation and doesn't allow the income beneficiary to benefit from any increase in the value of the trust assets. Annuity trusts cannot accept additional gifts.

Although San Francisco Ballet does not currently serve as trustee for charitable remainder trusts, the planned giving office is happy to work with donors and their advisors to create trust that will meet the donor's philanthropic goals. Please contact Elizabeth Lani, the Ballet's planned giving manager, at 415.865.6623 or legacycircle@sfballet.org.