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DETROIT JEWISH NEWS

'TN

at

7/7

2000

102

INTERNATIONAL
NEWS PLUS

372 Oullette Avenue • Windsor, Canada

course of their life." In some cases,
part of each payment is tax-free,
increasing each payment's after-tax
value.
If the donated assets have appreci-
ated, and if the donor has owned the
assets for more than a year, the capital
gains tax that normally would apply
is instead spread out over the course
of the donor's lifetime.
Lowe explains that the charitable
gift annuity "lets you unlock appreci-
ation in gifted assets, and reinvest
them in a guaranteed rate of return
vehicle. You know exactly how much
you will get every year for as long as
you live.
"Sometimes, this money is three to
four times greater than the dividends
you might otherwise have received."
Another method of planned giving
is a charitable remainder trust. It's
similar to a charitable gift annuity, in
that it is designed to provide income
to the donor until the donor's death
or for a specific term of years (no
more than 20). After that time, the
remainder goes to the philanthropic
purpose that was established when
the trust was created.
Rather than donating the money
directly to charity at the beginning, a
charitable remainder trust is a legal
entity that is set up to pay the donor
and his or her beneficiaries. It allows
the donor to pass more value to his or
her heirs and potentially reduce estate
taxes, while at the same time increas-
ing their income.
The trustee (the donor, an attorney
or another third party) periodically
pays the donor or his or her designat-
ed beneficiaries an agreed-upon sum
from the trust funds. Whatever is left
in the trust eventually is donated to
the designated charity, which can
then sell the property or assets with-
out having to pay capital gains or
income taxes. Because the ultimate
investment gain belongs to the chari-
ty, not the donor, the gain is not
taxed as part of the donor's estate.
There are two types of charitable
remainder trusts — an annuity and a
unitrust. As Lowe explains, a unitrust
provides for payment of a fixed per-
centage (at least 5 percent) of the
value of the trust's assets, calculated
annually. This percentage is paid each
year to the donor or a named benefi-
ciary for life or for a term of years
(for a maximum of 20 years).
If the income is more than the
specified percentage, the excess will
be added to the trust's principal. If
the value of the trust's assets increases,

the amount paid to the donor or the
income beneficiary will also increase.
If the value of the assets decreases, the
payments will decrease.
Tax-deductible contributions can
be added to the unitrust at any time.
Lowe defines an annuity trust as
one in which the donor or the named
beneficiary receive a specific amount
(at least 5 percent) each year based on
the value of the initial assets of the
trust, for life or for a specific term
(but not more than 20 years). The
payments remain constant over time.
Unlike the unitrust, additional
contributions cannot be made to an
annuity trust.
Charitable remainder trusts provide
several benefits. The donor retains the
right to receive a secure, fixed income,
or provide for payments to another
party, such as a spouse, child or parent,
although if payments are made to
someone other than the spouse, there
may be gift taxes.
The donor receives an income tax
deduction for the present value of the
"remainder" portion of the gift — the
part that ultimately will go to the chari-
table organization — and will not pay
any capital gains taxes on the transfer of
appreciated assets to the trust.
Eliminating the capital gains tax
makes appreciated assets, such as
securities and real estate, popular
choices for charitable remainder
trusts. The donor also can save on
estate taxes if the trust assets are
removed from a taxable estate.
Charitable remainder trusts are
often beneficial to those who want to
provide for children or grandchildren
in the future, or for those who do not
need the additional fixed income
presently but want the funds to grow
tax-free for higher income payments
in the future.
A charitable lead trust flips the
charitable remainder trust concept
upside-down. With a charitable lead
trust, the annual income from the
trust is paid to a charitable organiza-
tion for a specified number of years,
after which the principal of the trust
reverts back to the donor or his or
her children or grandchildren.
If a donor has a sizeable estate and
high federal estate taxes are anticipat-
ed, the charitable lead trust can pro-
vide significant benefit because the
gift or estate taxes may be significant-
ly reduced or even eliminated on
trust assets left to beneficiaries.
Moreover, no estate tax is paid on the
appreciation of assets placed in the
trust.

Some not-for-profits have come to
rely heavily on planned giving as a
means of support. For the Arthritis
Foundation, more than 70 percent of
its donated funds come from planned
gifts.
The Juvenile Diabetes Foundation
instituted a program four years ago
called the Beta Society. Michigan
Executive Director Karen Breen notes
that the Beta Society "has raised mil-
lions in planned giving dollars, all of
which fund diabetes research. Each
year since its inception, the amount
available for research has increased,
which will assure that JDF's research
commitments will be met."
Membership in the Juvenile
Diabetes Foundation Beta Society has
increased 40 percent this year, result-
ing in $25-30 million in planned
gifts. In addition to cash and stocks,
supporters can donate personal resi-
dences, vacation homes or even a
farm, taking an immediate income
tax deduction and reserving the right
to use the property for the remainder
of the donor's life.
Federation's Lowe describes a
retired couple that recently came to
him for assistance. They owned stock
in a pharmaceutical company that
they purchased in the 1950s. After
holding the stock for more than 40
years without dividends, they learned
it was being taken over for cash in the
amount of $70,000.
The couple did not want to pay
capital gains taxes on the proceeds,
but they needed the income.
Lowe took the stock and created a
charitable gains annuity for the cou-
ple. It pays them $5,000 a year for
the remainder of their lives, which is
more than they ever expected to
receive from the investment. The
couple also received an immediate
income tax deduction of over
$40,000. They have established a
permanent fund supporting the Fresh
Air Society which, when they pass
away, will receive the remainder of
the funds to create scholarships for
needy children.
"All of this," says Lowe, "from a
stock that they never received a divi-
dend from the entire time they held
it.
Regardless of which charitable
cause a donor chooses to support,
Lowe believes "the icing on the cake
is that you are doing something good
for your community, for something
you care about. You are leaving the
world better off because you were
here." El