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Frequently Asked Questions
If a trust agreement is established as irrevocable, it means that it can not be revoked (broken) except under unusual circumstances. Why would anyone want an irrevocable trust?
There are always specific reasons for making an irrevocable trust agreement. Perhaps it involves a family business where some of the family members are getting on in years and the family wants to make certain that managementcontinues to run smoothly even if hindrances, such as senility, enter the picture.
Many times the reasons for an irrevocable trust involve estate and/or income tax avoidance. In order to be successful in such avoidance, the trustor must not have any direct or indirect power or control over the trust property or income. The regulations on this subject, set out in the Internal Revenue Code, must be carefully followed.
What is the difference between a charitable remainder unitrust and a charitable remainder annuity trust?
The major difference is in the valuation of the assets of the trust, which establishes part of the calculation for the determination of the amount of income received by the income beneficiaries. The annuity assets are valued at the time the assets are placed in the trust. The trust assets are never revalued. Annual payments remain the same, whether the assets appreciate (increase in value) or depreciate (lose value).
The assets in the unitrust are revalued annually. If the trust assets appreciate, the payment to the income beneficiaries will increase. If the trust assets depreciate, the payment will decrease.
What happens to my assets in a trust for a charity if the charity goes out of business before the expiration of the trust?
Your trustee is authorized to name a substitute, if that is the sole charity.
Should I name a charity as trustee of my charitable remainder trust?
This is often done if the organization is qualified to so act under local law. The organization's representatives can satisfy you in that regard. Often they will serve without fee, which is an additional incentive.
Can I use my insurance to benefit charitable organizations?
Yes. This is an area overlooked by many. You can name one or more charities as a primary or alternate beneficiary. Furthermore, if you no longer need the policy proceeds in your estate, you can transfer ownership of the policy to the charity or charities. If the policy has cash loan value, the charity can draw this out and use it. In this case, you not only receive a charitable gift deduction, but any additional premiums you pay are tax deductible for you now. And, on your death, the charity receives the balance of the policy proceeds and none of it is included in your estate for tax purposes.
How can I fund a charitable gift annuity and how is my income calculated?
The usual funding sources for a charitable gift annuity are cash and marketable securities. There can be tax benefits associated with the gift of appreciated securities (the current market value exceeds the cost or basis value). As a gift annuity is considered partially a gift and partially an annuity, part of the gift avoids capital gain tax entirely. Real estate and other marketable assets may also be used. Generally, the charity will convert the assets to cash to fund the annuity.
The income provided you by the annuity are determined by your age and the age of any additional beneficiary and are calculated using tables established and filed with regulatory agencies under which the charity operates its annuity program.
Can I set up a charitable gift annuity and delay the start of the income until I will more likely need it, such as at my retirement, when my income is lower?
Yes, there is flexibility in the establishing of charitable gift annuities that make them a popular and effective retirement planning vehicle. Using a deferred gift annuity, the annuity earnings accumulate on a tax-deferred basis. Thus the deferred payment annuity accomplishes several things. First, the donor receives a tax deduction in the year the annuity is established, which would in theory be when the donor is in a higher tax bracket. Secondly, the gift to the charity becomes larger as the deferred earnings increase the annuity's principal. Finally, since the deferred payment annuity grows in size while income is deferred, the ultimate income will be more per year.
To make a planned gift or for more information about estate planning and how to utilize any of the information here, please contact:
Manager, Major and Planned Gifts
10 T.W. Alexander Drive
Research Triangle Park, NC 27709
Or click here to use our online e-mail form to request more information.
This information is provided solely for informational purposes. We recommend that you consult with a licensed, qualified advisor or attorney before making any estate planning decisions.