What Is a Charitable Remainder Trust?
A charitable remainder trust (CRT) is established when you transfer assets (cash or appreciated assets) to the trustee named in the trust agreement (e.g., a bank trust de¬partment or Himalayan Institute). Your trustee invests the assets for the term of the trust, which can be for the life of the income beneficiary (or beneficiaries) or for a term of no more than twenty years. When the trust ends, the remaining assets are distributed under the guidelines that you previously set for your gift to Himalayan Institute.
There are two basic types of CRTs, and the payment you receive depends on the kind of CRT that you choose. A charitable remainder annuity trust pays a fixed amount each year for as long as the trust term lasts. The payment must be at least 5% of the value of the trust assets when it is established. The charitable remainder unitrust dif¬fers in that the payments may be variable because you are receiving a fixed percentage of the unitrust’s assets as revalued each year. The payment must still be at least 5% of the trust’s value, but in this case, it is revalued annually.
Why Might a Charitable Remainder Trust Be Appropriate For Me?
A CRT is an excellent solution for charitably inclined donors who desire to sell an appreciated asset but do not want to pay capital gains tax. By transferring the property into a CRT, the trust may sell the contributed property and purchase new property without the payment of any capital gains tax. A CRT is also ideal for donors who desire additional retirement income and for donors who have a significant tax liability in the current tax year.
When the trust terminates, any remaining assets in the trust will pass to the Himalayan Institute for purposes designated by the donors.
What Are the Advantages of a Charitable Remainder Trust?
A charitable remainder trust helps to:
- Further the mission and tradition of the Himalayan Institute
- Supplement your retirement income with the potential for long-term income growth
- Unlock appreciated assets (securities, real estate, business interests, etc.) without in¬curring a capital gains tax
- Remove assets and future appreciation from your taxable estate
- Receive secure investment and administrative management through Himalayan Institute with no fee
- Obtain a significant income tax charitable deduction
Example of a Charitable Remainder Trust (Annuity Trust)
Mrs. Karma establishes a $200,000 annuity trust with a payout rate of 5% that provides annual payments of $10,000 to her granddaughter for five years to help with the costs of her education. The next year, if the trust appreciates to $205,000, her granddaughter still re¬ceives $10,000. Conversely, if the trust’s value declines to $195,000, her granddaughter still receives $10,000. At the end of the five-year period, Mrs. Karma has directed that the remain¬ing principal fund the Himalayan Institute. In addition, Mrs. Karma would receive a significant income tax deduction in the year that the trust was established.
Example of a Charitable Remainder Trust (Unitrust Example)
Mrs. Karma establishes a $200,000 unitrust with a payout rate of 5% as revalued each year with the payments going to her for the rest of her life. In the first year, if the trust appreciates to $205,000, she will receive $10,250. Conversely, if the trust’s value declines to $195,000, her income will be $9,750. Mrs. Karma has directed that, upon her passing, the remaining prin¬cipal fund the Himalayan Institute. In addition, Mrs. Karma would receive a significant income tax deduction in the year that the trust was established.
Adapted from Penn State University’s Fact Sheet on Charitable Remainder Trusts
As with any decision involving your assets, we urge you to seek the advice of professional counsel when considering a gift to the Himalayan Institute.