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Similar to the charitable gift annuity in that the payments are fixed at the time it is established, the charitable remainder annuity trust offers more flexibility and, therefore, more planning power.
The charitable remainder annuity trust is a tax-exempt trust that makes payments to the income beneficiaries based on a fixed percentage of the value of the trust assets at the time the trust is established. Payments received by the beneficiaries are taxed under the four-tier system of trust taxation, which effectively states that they will be taxed according to the manner in which they are received by the trust (i.e., ordinary income, capital gain, exempt income, return of principal).
The donor may identify any number of income beneficiaries, provided that the income tax deduction calculated at the time of the gift is equal to at least 10 percent of the gift and that another calculation required by the IRS confirms that there is less than a 5 percent probability that the trust will expend all of its assets in payments to the beneficiaries. In addition to establishing the number of income beneficiaries, the donor has the option of designing the trust to last for the life or lives of the beneficiary(ies);a fixed term of years or life, whichever is longer (or shorter); or simply a fixed term of years.
The charitable remainder annuity trust, therefore, allows a donor to support Colby while meeting personal goals requiring fixed payments over time or in complement to the fixed-income portion of the donor's portfolio.
Upon creating a charitable remainder annuity trust, an income tax charitable deduction is available and may be claimed in the year the gift is made. To the extent the donor is unable to use all of the deduction, a five-year carry forward is available.
Colby stands ready to serve as the trustee of a charitable remainder annuity trust provided the College is irrevocable remainderman of at least 51 percent of the trust assets and provided that the payout rate of the trust is set at between 5 and 7 percent. You may, should you wish, name yourself or another person or institution to serve as trustee.
The following chart shows the income tax charitable deduction available from a 5 percent charitable remainder annuity trust funded with $100,000.*
At Colby you may establish a charitable remainder annuity trust with a minimum gift of $50,000 in cash or marketable securities.
*Calculations shown here are based on the June 2010 IRS discount rate of 3.2 percent.