Benefits of Planned Giving
• Reduce or eliminate capital gains tax.
• Provide income for you and if you wish, another beneficiary for a lifetime.
• Receive a substantial federal income tax deduction.
• Eliminate or reduce federal estate taxes.
• Enable you to turn low-yielding assets into higher income streams.
• Provide a legacy for you and your family through a meaningful gift to Community School.
Gifts by Will or Living Trust
The most common form of deferred or planned gift to support Community School is a bequest contained in a person's will or revocable
There are many creative ways to give to Community School both now
and in the future. Although many people think that both planned giving
and retirement go hand in hand, you do not need to be retired to think
about your future or the future of Community School. There are
many programs that will work for you and your family right now.
Charitable Remainder Trusts (CRT)
An arrangement in which your property or money is donated to Community School, but you continue to use the property and/or receive
income during your lifetime and if you so choose, the lifetime of a
beneficiary. Community School would receive the principal after a
specific period of time. By creating a CRT, you avoid capital gains
tax on the donated assets and also get an income tax deduction for the
fair market value of the remainder interest that the trust earned. In
addition, the asset is removed from your estate reducing the subsequent
Types of CRT’s
1. Charitable Remainder Annuity Trust
A Charitable Remainder Annuity Trust is when you place assets into a
trust (usually a minimum of $50,000) from which you would receive a
life income at a fixed amount. After your lifetime, and if desired,
the lifetime of a surviving beneficiary, the trust remainder would go
to Community School.
Example: Mr. Smith owns appreciated securities that originally cost him $30,000
and are now worth $100,000. He donates these securities to
Community School to fund a charitable remainder annuity trust, naming
his wife, age 65, as the lifetime beneficiary. The trust agreement
provides for annual payments to Mrs. Smith of 5.3% ($5,300/year) of the
initial trust principal for life. Mr. Smith qualifies for an income tax
deduction of over $37,000. Additionally, he avoids the tax on the
$70,000 in appreciation that would have resulted had he sold the
securities. At the end of Mrs. Smith’s lifetime, the trust principal
will pass to Community School for the purpose designated by Mr.
Smith (e.g. scholarships or endowment). Note: In similar cases depending on the age of the donor, a charitable gift annuity may provide a higher payment.
2. Charitable Remainder Unitrust
A Charitable Remainder Unitrust works very much like a Charitable
Remainder Trust, except the income you receive varies year to year
based on a fixed percentage of the value of the assets.
Example: Mr. Smith, age 68, transfers appreciated securities that cost him
$100,000 and are now worth $500,000 to a unitrust with an annual payout
rate of 6%. He is to receive payments for life. At the end of his
lifetime, the unitrust assets will create a scholarship endowment at Community School. Mr. Smith's charitable deduction is about
$236,800, and it can be used over six years. Under the provisions of the
trust agreement, Mr. White's first annual payment will be $30,000, a
significant portion of which may be taxed at the lower 15% capital
gains tax rate. In year two, assuming an 8% total annual investment
return, the trust will have a principal balance of $510,000, and the
payment will be $30,600. Assuming the same 8% total return, the payment
in year three will be about $31,200, and so on for life. Mr. Smith may
also completely avoid the tax on the gain he would have incurred had he
sold the property instead of donating it.
3. Reverse CRT or Charitable Lead Trust (CLT)
A Charitable Lead Trusts are often viewed as the opposite of a
Charitable Remainder Trust. Like a CRT, Charitable Lead trusts offer
a reduction of capital gains tax as well as current income tax
deductions. The difference is that Community School would become
the income beneficiary receiving a fixed income or percentage of the
asset value during your lifetime and after your lifetime, named
beneficiaries would receive the bulk of the Charitable Lead Trust’s
Example: Mr. Smith puts $1,000,000 in a twenty-year charitable lead trust to
benefit Community School. The trust agreement stipulates that the School
is to receive $70,000 annually according to the trust agreement. At
the end of the twenty-year term, Mr. Smith’s son, John, is to receive
the trust principal.
For tax purposes, only the remainder interest is subject to tax. In
this case, the IRS estimates that the value of the trust principle
(according to Treasury tables) to be about $222,500. In actuality, the
trust principal grows to $2,597,000 (assuming a 3% annual net return),
and this is what John receives. The difference between the value of
the remainder interest and the actual trust value is about $2,375,000,
which passes to John, free of transfer tax and Mr. Smith is only
obligated to pay tax on the value of the remainder interest ($222,500).
Tax Savings with donations through your IRA
Under current law, you can distribute up to $100,000 from your IRA
directly to Community School incurring no income tax liability.
Like the gift of an IRA at the end of your lifetime, this avoids both
the income and estate taxes on that portion of the IRA.
Community School recommends consulting with a tax professional or
lawyer for advice if you are contemplating a sizable charitable gift.
For more information, please call the Development Office at 622-3960