TYPES OF ANNUITIES, LIFE ESTATES AND OTHER AGREEMENTS AVAILABLE THROUGH CHARITABLE GIFTING

As stated in the overview, it is possible to gift assets before death and receive both income(if desired) and a possible tax deduction. There are numerous types of possibilities and here are the most common. But you will need to a lot of homework- probably commencing with a budget- to determine what might be the best for you.

Outright Gift: In such case, there is a 100% deduction for the gift (provided formal appraisal justifies value) up to 50% of donor's adjusted gross income (30% for 30% charities). If not used in one year, deductions may be carried forward for five years. Since there are no annuity payments involved, the deduction is usually the largest of all types of gifting strategies.

Charitable Gift Annuity- You can make a gift to a charity and receive annuity income. The amount of the income is based on the size of the gift, the age of the donor, the number of recipients and their the expected lifetimes, and the amount of payment. Income can be deferred to start at a later date and, in doing so, the charitable deduction is greater. Donor can use appreciated assets to defer capital gains tax over life of recipients. Deductions similar to that of trusts but supposedly can be funded with less money than that required for remainder trusts. It is based on the fair market value of the gift and the actuarial value of the annuity.

Pooled Income Fund- Instead of separate management of the asset(s) gifted and particularly where smaller gifts do not warrant a separate trustee, they are pooled with funds of other donors and managed together (similar to a mutual fund). Income received is based on a pro rate ownership and is variable and is taxed as ordinary income. The gift avoids capital gains tax and repeat gifts are allowed. A tax deduction is based on value of charitable remainder interest.

Life Estate Agreement- You retain the right to the use and income of the property for as long as you live. Upon your death, property foes directly to charity. Deduction is based on the size of the gift, the expected actuarial lifetime, interest rates by the government, any depreciation or depletion taken, etc. You may use this to gift your home.

Charitable Lead Trust- In such cases, the donor does not need or desire current income and gifts such income, for a period of years, to a charity. Upon the donor's death, the property goes to separate beneficiaries (children for example). This way you don't disinherit the beneficiaries but can still provide substantial benefits to the charity while alive.

Charitable Remainder Annuity Trust and Unitrust- This is a gift to charity in return for an annuity for a lifetime (usually) for an individual (and/or others). A tax deduction is computed from the present value of the income stream, the interest rate utilized and the age of recipient(s), number receiving payouts, etc. These are irrevocable transfers. The annuity trust provides a fixed income based on the value of the assets at the time of gift and does not change. A unitrust has variable income based on a fixed percentage of the trust's annual income. If the value is apt to rise, it provides a form of inflation protection. However, if the value should fall, the income can decrease below the income needed.

CHARITABLE REMAINDER TRUST: (1998) The 1997 tax law imposed restrictions which will severely limit the use of these trusts. The first limit restricts the annual amount which can be paid out to no greater than 50% of the fair market value of the assets in the trust. The second, and more restrictive, provides that the present value of the charitable remainder interest of the trust must be at least 10 percent of its initial fair market value. This, in effect, limits the present value of the interest going to beneficiaries to be no more than 90% of fair market value. The Charitable Remainder Unitrust (CRUT) is the one most impacted by these restrictions. Under the old law, CRUTs were able to allow for a payment stream nearly at 100% percent of current fair market value. However under the new law, a Unitrust which provides benefits for the life of the beneficiary can no longer be established for younger individuals since the longer payout period would result in remainder interest to the charity of less than 10% of the original fair market value of the property transferred. As an example of the new law, a CRUT could not be established with a single life beneficiary under age 21, nor with joint lifetime beneficiaries both age 34. What that really means is that there is a severe limit on the ability to include children and grandchildren as beneficiaries of the trust. CRUTS with term certain periods are also restricted. For example a CRUT with a 20 year term certain cannot exceed a 10% payout. The maximum payout rate for a CRUT with a two-year certain period would be 50%. How to figure out this mess of new laws? Simply utilize a major charity. They have the software already in place and can help you every step of the way

IRS ruling on Grantor trust: (2004) Almost like having your cake and eating it too.