Even though the past few years have been a challenge for everyone in very personal and different ways, one commonality we all share is that these unusual times have reminded us to cherish what we do have and review/revise our life priorities.
One of those priorities might be allocating a contribution toward a cause important to you in order to help those less fortunate (such as food security). Others may wish to support the community in other ways by giving to church, synagogue, school or other institution. As you consider your charitable giving priorities, consider split interest trusts or charitable gift annuities. Both options enable you to create or maintain cash flow from an asset or assets while at the same time satisfying a charitable objective – a win-win!
Charitable Gift Annuity
Many charitable organizations offer a charitable gift annuity as an option for their donors. A charitable gift annuity benefits the donor in much the same fashion as a split interest trust. The annuity provides a stated return for the non-charitable beneficiary. The charitable contribution that is taken in the year the charitable gift annuity is purchased is calculated using IRS actuarial assumptions.
Split Interest Trust
A charitable remainder trust (CRT) is a type of split interest trust. A CRT provides an annual stream of payments to one or more noncharitable beneficiaries for a term of years or for life. When the noncharitable interest expires, the remainder passes to charity.
CRTs are often funded with highly appreciated assets. The assets are transferred into the CRT and sold. There is no tax due on the sale because the CRT is exempt from tax. The trust then has the cash to make the required annual distributions to the non-charitable beneficiaries.
The grantor of the CRT who has funded the trust receives a charitable contribution deduction in the year the CRT is funded. The contribution amount is the present value of the charitable remainder interest and is calculated based on IRS provided actuarial factors. A CRT is often called a split interest trust because of the noncharitable beneficiary and the charitable beneficiary each have an interest in the trust.
There are many other types of split interest trusts. Some of these split interest trusts are attractive when interest rates are high and some when interest rates are low.
If you are donating material goods – be it art, property, etc there are key IRS guidelines to follow when it comes to these types of donations. Contact your advisor or CPA if you have any questions regarding your philanthropic intentions.
