A charitable remainder trust is an excellent gift option for donors who wish to support the University of Minnesota while retaining income for themselves or others. This type of gift can be particularly useful for donors who want to increase current income and diversify assets without paying upfront capital gains tax.
How it works
- A donor transfers cash, securities, real estate, or tangible personal property to a trust.
- The trust makes payments to the donor, or others, for life or for a term not to exceed 20 years.
- The donor selects the payout rate, which must be at least 5 percent.
- When the trust terminates, the remaining assets in the trust are used to support the University and any other charities the donor has designated.
Benefits to the donor
- Donors will receive an income tax deduction for a portion of the assets contributed to the trust, subject to applicable limitations.
- Donors will avoid capital gains tax on the sale of appreciated assets used to fund the trust. However, each payment may be subject to capital gains tax.
Types of trusts
A charitable remainder unitrust provides one or more individuals with variable annual income. The annual payment to the beneficiaries is determined each year as a percentage of the trust’s value and payments will increase or decrease based on market performance. Donors often choose a charitable remainder unitrust as a potential hedge against inflation because the payments may increase over time.
A charitable remainder annuity trust provides one or more individuals with fixed annual income. The income beneficiaries receive a fixed percentage of the initial value of the assets placed in the trust. Donors may prefer an annuity trust if they do not want their income stream to fluctuate with market performance.
A flip trust allows donors to convert an asset earning little or no current income (such as real estate or personal property) to an income-producing asset. The trust payments begin after the original assets are sold and the proceeds are invested in a diversified portfolio.
Testamentary charitable remainder trust
Some donors may consider establishing a testamentary charitable remainder trust with a retirement account or other assets. The trust would begin at the donor's death and can provide income for family members or others for life or a term of years. The assets remaining in the trust then pass to the charities the donor has designated.
University of Minnesota Foundation as trustee
The Foundation may agree to serve as trustee of a charitable remainder trust if at least 50 percent of the remainder is designated to the University, and the amount of the gift for the University is at least $100,000 at the time the trust is funded. The trust beneficiaries must be at least 55 years old on the date payments begin (unless it’s a term of years trust) for the foundation to serve as trustee.
IRA Qualified Charitable Distributions
If you are 70½ or older, you can now make a one-time qualified charitable distribution of up to $50,000 from your IRA to fund a charitable remainder trust. Special rules apply. For more information about this gift option, or to request a personalized illustration, contact the U of M Foundation at [email protected] or (612) 625-8676.
Information on this website is not intended as legal or tax advice. For information on how any gift may affect your tax situation, please consult with your own professional advisor.