Charitable remainder trusts

Charitable remainder trusts

A flexible, income-producing option for sizable gifts.

Are you looking for an effective way to make a major gift to Indiana University, gain immediate tax benefits, and create an income for yourself and/or others? A charitable remainder trust can be a useful, flexible way to meet both planning and charitable goals.

It works like this:

  • You transfer cash or property into the trust, removing it from your estate.
  • You name the income beneficiaries.
  • You choose the income percentage (within legal limits) and whether you will receive a fixed or fluctuating payment amount.
  • You choose the payment term—for life or for a set number of years (up to 20)

Your gift qualifies for an immediate income tax deduction for our estimated remainder interest. If you use appreciated long-term property, you pay no capital gains tax on the transfer. The trustee manages the assets, makes the income payments, and, at the end of the trust term, pays out the remaining assets to IU.

See it in action

Calvin, age 75, owns a low-dividend-paying stock worth $300,000 that he purchased years ago for $50,000. If he sells the stock, he will have to pay $37,500 in capital gains tax (on his $250,000 in capital gains at his 15% rate). If he then invests the after-tax sales proceeds of $262,500 in CDs earning 4%, he will realize an income of $10,500 this year.

Instead, Calvin chooses to use the stock to fund a charitable remainder trust that will pay him $15,000 (5%) each year for 20 years. He doesn’t owe any capital gains tax at the time of the transfer. Instead, he will pay a smaller amount of capital gains tax on each annual payment, spreading the tax out over time. Calvin’s gift also qualifies for an immediate income tax charitable deduction of $125,122 if he itemizes.

*Example is for illustrative purposes only. It assumes an applicable federal rate of 5.8% and annual income payments.

You choose how to give—and how to receive

The two main types of charitable remainder trusts, a charitable remainder annuity trust (CRAT) and a charitable remainder unitrust (CRUT), have key differences:

  • Income payments
    • CRAT offers a fixed payment that is a percentage of the initial assets in the trust. This provides a steady, reliable income stream and can be a good way to lock in a high interest rate.
    • CRUT offers a variable payment amount that is a percentage of the trust assets as revalued annually. This serves as a hedge against inflation.
  • Flexibility
    • CRAT comes in just one form and cannot accept additional contributions.
    • CRUT is more flexible—it comes in four different types and can accept additional contributions.

You can set up a trust in your will to provide for loved ones and IU

A “give it twice” trust is simply a CRUT that you establish in your will. It can support a spouse or other family members through income payments in addition to supporting Indiana University.