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Charitable Remainder Trusts/Unitrusts

Perhaps the most popular and flexible of all the ways to make a major gift to Scouting is the charitable remainder trust. Your gift is placed in a trust. The trust sells and reinvests the assets, and makes regular income payments to you and/or other named beneficiaries. Payments may last either for a specific number of years or for one or two lifetimes. Trusts may be funded with cash, stocks, bonds, land, and even other assets.

The payout rate is variable and based on the fair market value of the gift placed into the trust. Payments can either be a specific amount per year (annuity trust) or a fixed percentage (unitrust). Trusts with percentage payouts are revalued each year; as the principal grows in value, the annual income will also grow. After the trust ends, the principal passes to the local council chosen by the donor.

The rates of payment, investment philosophy, type of income and other details can be tailored to provide a financial planning tool that is creative, fiscally sound, and responsive to your needs. It provides a significant gift to Scouting, so you are entitled to an income tax deduction when you create your trust. It is also a great opportunity to fund the trust with low-yielding, highly appreciated assets, avoid capital gains tax, and increase your income stream.

Example:  A donor has highly appreciated land worth $300,000 (he only paid $50,000 for it). It is currently generating no income. He places it into a charitableunitrust to pay 6% annually to him and his spouse for 15 years (there is 2% annual principal growth). The benefits:

Immediate income tax deduction: $124,000
Capital gains tax owed upon gift:  0
Total income over 15 years: $311,000
Total gift to BSA after 15 years: $396,000

The two main types of charitable remainder trust are unitrusts and annuity trusts.

  • In general, the shorter the trust term, or the smaller the annual payout, the larger the deduction.
  • Since trust property is removed from a donor’s estate, this may result in significant savings in estate taxes and/or probate costs at the end of the donor’s lifetime.

Additional Retirement Planning with Charitable Trusts

For retirement plans not involving a charitable trust, there is a funding maximum before you lose your tax benefits. However, by combining your charitable objectives with your retirement needs, you may find much more flexibility.

Example:  A donor, age 55, already has an overfunded IRA but would like to do more. He decides to set up a charitable unitrust now, and plans to add $50,000 a year in cash and/or stocks to the trust for the next ten years. He plans to keep a high growth portfolio (7%) until he retires, then reinvest to generate 7% a year income for the rest of his life. The benefits:

Income Tax Deduction: $154,000 over the next ten years
Capital gains tax owed upon gift: 0
Income in first year of retirement: $51,743
Estimated total lifetime income: $1,049,000
Total to BSA at end of trust: $875,400