How can you give through a Charitable Remainder Trust?

David and Cathy own several sections of land that produce very little income. The property is debt-free. If they sold the property, they would owe a huge capital gains tax. They would like to have a diversified source of income for their lifetime but do not want to sell the property and incur the capital gains tax.

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A charitable remainder trust seemed to be the perfect solution for them. To set up a charitable remainder trust, the donor places either cash or certain assets, such as publicly traded securities or unmortgaged real estate, in a trust that will ultimately benefit the Kalamazoo Gospel Mission or any other charity of his or her choosing, usually after the donor's death. Generally, a designated trustee can sell the assets used to fund the trust and reinvest the proceeds without triggering capital gains taxes.

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The donor collects payments from the trust and also receives immediate income-tax deduction. The size of which depends on how much the charity receives down the road and is determined by an IRS formula. At the donor's death or the end of a specified time up to 20 years, the Kalamazoo Gospel Mission or any other charity designated receives whatever is left in the trust.

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There are two types of charitable remainder trusts: unitrusts and annuity trusts. With a unitrust, your income varies. You receive payments each year, determined by multiplying a fixed percentage that you choose (say 7%) by the fair market value of the trust's assets as valued each year. As your investments grow, so does your income; but if your investments decrease in value, your payout does as well.
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With the annuity trust, your income remains constant because it is based on a fixed percentage of the initial fair market value of the assets funding the trust.

You can fund a trust by donating a variety of assets: closely held stock, real estate, art, or even payments from retirement plans. If it is a unitrust, you can add assets at any time. It is also possible to designate multiple beneficiaries and to change those beneficiaries at any time during the course of the trust.

Donating through a charitable remainder trust is an excellent way to make a substantial gift to the Kalamazoo Gospel Mission. If you have any additional questions, contact your financial advisor or feel free to contact Wanda at our mission at 269.345.2974.