Imagine making a gift that returns an income to the donor. A gift of cash or securities may be made to the Community Foundation and the donor retains the right to receive income for life from those assets. Usually, the spouse or another beneficiary is included in the gift contract so they will continue to receive life income if the donor predeceases them. At the donor's death and/or the death of the last remaining beneficiary, the Community Foundation receives the remaining principal, if any.

A Charitable Gift Annuity is a simple contractual agreement between the donor and the Community Foundation. In exchange for a gift of cash or securities, Community Foundation will agree to make fixed, periodic payments to the donor and/or another beneficiary for life. A portion of the payments may even be tax-free, or taxed at the more favorable rate for taxes on capital gains.

The donor will be entitled to an immediate federal income tax deduction for a portion of the gift. The amount of the deduction is based upon the amount of the gift, the age(s) of the income beneficiary (ies) and the annuity payment rate.

The amount of the payment from the Charitable Gift Annuity is guaranteed for life and is backed by the assets of the Community Foundation.

Example: Ms. Sheldon, age 89, has stock that she purchased many years ago. The stock, for which she paid $100,000, is now worth $350,000. She establishes a Charitable Gift Annuity with the Community Foundation by a gift of the stock. She wants to receive the annuity payments for the remainder of her life and then have the payments go to her brother (age 81) for his life. The terms of the Charitable Gift Annuity provide for an annual payment of $30,000 for both lives. Ms. Sheldon will receive a federal income tax deduction of approximately $155,442. Her income tax deduction for this will be limited to 30% of her Adjusted Gross Income. However, she will be able to take the remainder of the unused deductions over the next five years, subject to the same 30% limitation. There will be no taxes on capital gains at the time of the gift and she will be able to spread her taxes on capital gains over several years. Ms. Sheldon also is able to take the majority of the gift out of her estate.

For More Details, Click on Charitable Gift Annuities.

There are two types of charitable remainder trust - the Annuity Trust and the Unitrust. Features of both include a charitable income tax deduction based on the donor's life expectancy, the avoidance of taxes on capital gains on the sale of appreciated securities or real estate and the reduction of estate taxes. The main difference between the two types of Charitable Remainder Trusts is the way in which annual income from the trust is determined.

Annuity Trusts

The assets given to a charitable remainder annuity trust are valued on the date of transfer to the trust. An annual payout is determined on that date and the donor receives this same dollar amount each year for life. Any named beneficiaries will also receive this same amount for life. After the deaths of the donor and any beneficiaries, the remaining principal is distributed to the Community Foundation.

When a trust is created, the donor receives an income tax charitable contribution deduction based on his or her life expectancy and the life expectancy of any beneficiaries (such as a spouse). Taxes on capital gains are avoided on the sale of any appreciated property such as stocks or real estate. The assets in the trust are removed from the estate for estate tax purposes. (Depending on the existence of named beneficiaries of the trust, some of the donor's expected life income may be included in the estate.) Upon the donor's death, the designated beneficiaries will, in perpetuity, receive support in the donor's memory.

Annuity trusts are usually created with assets worth $250,000 or more

Example: Mr. Greenspan creates an annuity trust with $250,000. He will receive $17,500 each year for the rest of his life, even in years when the trust does not produce sufficient income to cover the required distribution. The annuity trust must pay out $17,500 even if this income must come from the principal.

Unitrusts

The assets given to charitable remainder unitrusts are valued each year; an annual income payout is made based upon a fixed percentage determined when the trust is established. This allows for a variable payout from year to year, in contrast to the fixed dollar amount payout from the annuity trust. The unitrust is often used when inflation and its effect on the future purchasing power of a fixed income are a concern.

The same basic tax benefits that applied to the annuity trust also apply to the unitrust. Unitrusts are usually created with assets worth $250,000 or more.

Example: Mrs. Steinberg creates a trust worth $250,000. The trust has a 7% payout rate. This year she receives $17,500 income, or 7% of $250,000. In a year, the principal grows to $255,000. Next year, she will receive 7% of $255,000, or $17,850. However, unitrust income fluctuates with the market value of the Investments in the trust. If the principal is worth $245,000 the next year, she will receive 7% of $245,000, or $17,150.

In addition to making significant charitable gifts possible, both types of Charitable Remainder Trust (annuity and unitrust) are excellent financial and estate planning tools. A possible drawback, however, is that the assets donated to the trust are irrevocably taken from potential heirs and given to charity.

A very popular alternative is a combination of a Charitable Remainder Trust and a life insurance trust. The Charitable Remainder Trust provides lifetime benefits to the donor, and then after death to the Community Foundation. The life insurance trust gives heirs the asset value given to the Community Foundation and may increase their net inheritance over what they would have received had the charitable gift not been made.

Life Estate Agreements (Retained Life Estates)

A life estate agreement allows you to give a home or farm to the Community Foundation today, but retain the right to live in the home or use the farm for life. It may also be stipulated that the donor's spouse may continue to live there for his or her lifetime. The donor receives an immediate income tax deduction based upon age and the useful life of the property, and the home or farm value is removed from the estate. The donor must continue to maintain the property, insure it, and pay property taxes. After the donor's death, the Community Foundation becomes the owner of the property and may utilize the property for Community Foundation-related purposes or sell the property to generate funds.

Example: Mr. and Mrs. Heller (ages 75 arid 76) make a gift of their personal residence and the surrounding land. They reserve the right to live on the property for the rest of their lives. Before they decided to make the gift, they asked their daughter if she would like to inherit the house. She said no because she and her husband live and work in a city many miles away where she will most likely retire. The Heller's receive an immediate income tax deduction and have removed the value of their home and land from their estate, although they retain the right to live there.