Donors place assets (cash, highly-appreciated stock, real estate, or a family business) in an irrevocable trust that pays out an income annually to the donor and/or an additional beneficiary (often the donor’s spouse) for an individual’s lifetime or a maximum term of 20 years.
At the end of the trust’s term, or the death of the donor and surviving beneficiary, the remaining balance in the trust is transferred to the SAG-AFTRA Foundation without taxes or probate.
The trust can be customized to suit the needs of the donor and beneficiary with respect to amount donated and rate of income return and it provides a current tax deduction for the donor based on the present value of the ultimate gift to the SAG-AFTRA Foundation.
Since the trust is tax-exempt, the donor can transfer assets to the trust without incurring capital gains tax and the trust can sell appreciated assets at full value, reinvesting the proceeds to increase the value of the investment and income to the donor, again without capital gains implications.
A donor can also choose to use some of the income from the CRT to make annual gifts to a Wealth Replacement or Irrevocable Life Insurance Trust, which buys a life insurance policy on the life of the donor. Upon the death of the donor or surviving beneficiary, the assets are transferred to the SAG-AFTRA Foundation and the life insurance proceeds pass to the beneficiaries without estate or income taxes.
Income to the donor and/or beneficiary can be a percentage of the value of the trust (usually between 5-7%) or a fixed amount that represents a percentage within that range.
Note that in a Charitable Remainder Annuity Trust, annual payments to the donor and/or beneficiary are fixed when the trust is established. In a Charitable Remainder Unitrust, the donor and/or beneficiary receive a fixed percentage of the fair market value of the trust; payment amounts may vary as the fair market value of the trust is reevaluated annually.
1. The net income with makeup unitrust, in which the trust pays out either a fixed percentage or the actual trust income, whichever is less, with any excess of trust income over fixed percentage payout used to make up any deficiencies from prior years;
2. The net income with no makeup unitrust, in which the trust pays out either a fixed percentage or the actual trust income, whichever is less, but without making up deficiencies from prior years; and
3. The flip unitrust, which is structured the same as either the net income with makeup unitrust or the net income with no makeup unitrust, but converts to a standard unitrust when a predetermined event (such as the sale of a specific asset used to fund the trust) occur.