Estate Planning Guide
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The nuts and bolts of charitable trusts

When Sports Illustrated writer Doug Looney retired to his mountain home in the foothills above Boulder, Colo., in the mid-1990s, one of his first priorities was to give something back to the University of Colorado, where his dream career began.

"I was just very fortunate to get to write for 22 years for Sports Illustrated, which is not an adult job, and the fact was, it happened because I went to CU," he says. "I was interested in doing what I could to help them out."

Looney's amassed stock in Time Warner Inc., SI's parent company, had appreciated nicely over the years. He could have cashed it in, paid the 15 percent federal tax on the capital gains, donated what was left to CU and taken a charitable deduction on his income tax.

Instead, Ami Sadler, associate vice president of gift planning for the University of Colorado Foundation, showed him how, by establishing a tax-exempt charitable remainder trust, or CRT, he could donate his full portfolio value tax-free, plus receive a lifetime annuity and a charitable deduction upon creation of the trust.

CRUTs and CRATs
Charitable remainder trusts enable you to skip the tax man, give to charity and receive an income, too.
A win-win gift that gives back
  1. The difference between CRUTs and CRATs.
  2. Split-interest primer.
  3. The downsides of charitable trusts.
  4. Minimum gift thresholds.

The difference between CRUTs and CRATs

CRTs come in two flavors. Looney opted for a charitable remainder unitrust, or CRUT, which tied his annuity to a percentage of the fair market value of the donated assets, rather than a charitable remainder annuity trust, or CRAT, which would have set his lifetime payments at a fixed percentage of the donated assets.

Through his CRUT, Looney's stock was liquidated by the nonprofit CU Foundation, then immediately reinvested into a diversified portfolio. Each year, the trust is revalued. If it goes up, Looney receives more income for the coming year; if it goes down, he receives less. Upon his passing, what remains in the trust will go to the university, hence the name.

Sadler says Looney is typical of donors who want to cheer on their donation and enjoy a small taste of its success, even though they know their gift in trust is irrevocable.

"My experience is, most people prefer to do a CRUT because they're thinking of this long-term; they have an asset they would like to make a gift of, but they don't feel comfortable simply giving it outright," she says. "By making a gift into a CRUT, they are hedging their bets a bit because they are giving away their asset, but they're also making a provision to receive income back for life."

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Split-interest primer

Charitable remainder trusts, which were created by Congress in 1969, are classified as split-interest trusts by the Internal Revenue Service because their assets are split between charitable and noncharitable beneficiaries. To qualify for tax-exempt status, they must provide for annuity payments for a period of up to 20 years or for the life of the donor, benefit a recognized nonprofit charity and leave at least 10 percent of the initial fair market value of the assets placed in trust to charity.

Other split-interest trusts include charitable lead trusts, the reverse of a CRT, where the charity receives the earnings for a specified period and the donor or other noncharitable beneficiary receives the remaining assets. In addition, there are pooled income trusts, in which donated assets are pooled and each donor receives income based on their portion of the overall investment pool, after which the remainder goes to charity.

 

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