The Charitable Remainder Trust
A Gift and an Income


Every charitable gift can bring you personal
satisfaction Ñ the joy of knowing that you have
helped ensure the financial future of charitable
causes you feel are important.

However, certain charitable gifts can provide
tangible results as well as intangible ones. With
careful planning, a tool known as the charitable
remainder trust can provide both a good, solid
lifetime income and immediate tax benefits for
you and your family.

Indeed, you may find that a charitable
remainder trust can increase your retirement
income, help you escape from a locked-in
investment position, and provide more security
for you and your family Ñ all this, while still
helping to achieve your charitable goals.


Understanding the Charitable Remainder Trust
The charitable remainder trust is a popular
and time-tested method of making a generous
deferred gift to a charitable organization that
you personally want to support.

You, the donor, irrevocably transfer money
or property to a trust that you have created.
The trust agreement (drafted by your attorney)
directs that a specified income be paid each
year to you and/or other individuals named in
your agreement. The trustee may be directed
to make the income payments for as long as
you or other designated beneficiaries may live,
or for a specific term of years up to 20. After
the income benefits terminate, the remaining
assets in the trust are paid to the designated
charitable beneficiary.


An Illustration
Mary transfers assets worth $400,000 to a
charitable remainder annuity trust and directs
that $20,000 be paid to her each year for as
long as she lives. The assets will be invested by
the trustee during MaryÕs life, and both income
and principal may be used to make the annual
payments. After MaryÕs death, the trust will end
and the property remaining in the trust will be
paid to our institution.

Mary is assured an income of $20,000 annually
from the trust for as long as she lives. Mary
gains an immediate and substantial tax savings
because she can deduct, as a charitable contribution,
the present value of our institutionÕs
right to receive the trust property at some later
time.

Mary will not incur a current capital gains
tax when she transfers appreciated property to
the trust, even if the property is immediately
sold by the trustee. In short, she can convert
appreciated property to a stream of income
without an immediate capital gains tax liability.


Benefit #1 Ñ A Lifetime Income
As noted, a charitable remainder trust provides
a lifetime income to the donor or other
beneficiaries designated in the agreement. The
income can be a fixed sum of money (an annuity trust), or it can be a fixed percentage of the
value of the trust as redetermined each year (a
unitrust). In most cases, the income payments
will be made for the life of the beneficiary, but
they can also be made for a set number of
years, up to 20.

Typically, a donor will retain an income that
is 5 percent of the value of the trust (whether
an annuity trust of a unitrust). But the amount
of income is always a decision made by you, the
donor, to accomplish your personal objectives,
subject to the limits set by federal tax law.

Some donors want an income that will vary
with the value of the trust assets. Under the
unitrust arrangement, the trust assets will be
revalued each year and a specified percentage
of the value will be paid to the donor or other
beneficiary. A unitrust can be a hedge against
future inflation, but there is the risk that trust
assets may decline in value.

Other donors who prefer the stability of a
fixed-dollar amount of income for as long as
they live may choose the annuity trust.


CONVERTING AN ASSET TO PRODUCE A HIGH INCOME
Peter (age 76) owns appreciated stock
worth $300,000. The growth stock provides
little income, but it has appreciated
tremendously in value since Peter
bought it some years ago for $50,000.

Peter could sell the stock, but he
would incur capital gains taxes of
$37,500. If he invested the after-tax sales
proceeds of $262,500 in CDs earning
3 percent, he would realize an income of
$7,875 a year.

On the other hand, Peter can transfer
the appreciated stock to a charitable
remainder annuity trust that will pay
him $15,000 (5%) a year and also give
rise to an income tax charitable deduction
of $171,201*. PeterÕs charitable
deduction will result in a tax savings of
$59,920 in his 35% tax bracket.

The tax savings (by avoiding immediate
capital gains and taking a charitable
deduction) and the annual lifetime payouts
make the charitable remainder
annuity trust a smart option for Peter.
The fact that what money is left in the
trust will go to our organization makes it
a generous option as well.

*Example assumes an AFR of 3.0% and a
quarterly payout.


Benefit #2 Ñ
An Immediate Income Tax
Charitable Deduction
The most obvious tax benefit produced by
the charitable remainder trust is a federal
income tax charitable deduction. Even though
the charitable institution will receive no benefits
until the termination of all the income
interests, the donor can deduct Ñ on his or
her federal income tax return Ñ the present
value of the deferred charitable interest, subject
to the general limitations of tax law.

Computing the charitable deduction
depends in part upon the particular applicable
federal rate, or AFR, in the month of the gift
and the two preceding months. Generally
speaking, the higher the AFR, the larger the
charitable deduction for a charitable remainder
annuity trust. We can provide you with the
exact figures for a proposed gift.


Benefit #3 Ñ Avoidance of Capital Gains Tax
Under todayÕs tax laws, a charitable remainder
trust can be especially rewarding if it is
funded with appreciated property. The reason:
There will be no capital gains tax liability either
when you transfer the property to the trust or
at the time the property inside the trust is sold
by the trustee. When the trust makes its annual
income payout, part of that payout may be
taxed as capital gain depending on how the
trustee invests the assets.

Perhaps you own securities that provide little
or no income, but have appreciated significantly
in value. You can transfer the securities to a
charitable remainder trust that will pay you a
high income for your lifetime and you may not
pay capital gains tax, even though, in most
cases, your charitable deduction will be based
on the propertyÕs full fair market value.

The ability to convert a low-income producing
asset into a high-income producing asset
without incurring a capital gains tax is a distinct
benefit that can be gained through a
carefully planned charitable remainder trust.


Planning Your Charitable Remainder Trust
Although the tax benefits of a charitable
remainder trust are extremely generous, it is
important to determine whether the trust will
fit into your broad estate, tax and financial
plans. Happily, the charitable remainder trust
is extremely flexible.

You name the income beneficiaries. You can
name yourself, or anyone you wish, as the
income beneficiary of the trust. If you wish, you
can direct that the income benefits be paid to
you for your life and then to your spouse for
his or her life. Or you can name one or more
of your children as beneficiaries, so long as the
calculated value of the charitable remainder
interest is at least 10 percent.

You set the exact percentage that will be
paid each year. A donor typically sets the percentage
of the annual trust payout. According
to federal tax law, the percentage must be at
least 5 percent and no more than 50 percent.

You elect a fixed or variable income. While
the fixed-dollar income (annuity trust) has
received more emphasis in this booklet, you
may very well prefer a variable income (a unitrust)
that can keep pace with inflation. Some
unitrust arrangements can be set up to effectively
defer the annual payments until a time
when you may be in a lower tax bracket.

You select the property transferred to the
trust. There may be real advantages to funding
your trust with appreciated property, especially
if the property currently produces little or no
income. But there may also be advantages to
funding your trust with cash, certificates of
deposit, closely held stock or other properties.
We can tell you the tax consequences that will
result from the choice of properties transferred to the trust, but the decision is your after consulting
with your attorney.

You name the trustee. You can name the
trustee Ñ your bank, your attorney, a family
member, etc. You also can fix the commission
that will be paid to the trustee or direct that
the trustee serve without compensation.


A HIGH INCOME FOR RETIREMENT
Richard transfers undeveloped real
estate worth $500,000 to a charitable
remainder unitrust that will pay him, for
his lifetime, 5 percent of the value of the
trust, or trust income, whichever is less.

Because Richard, now 55 years of
age, does not need immediate income,
the trustee will retain the real estate that
has great growth potential but produces
no income inside the trust.

Ten years from now, the property is
expected to be worth much more. At
that time, the trustee will sell the real
estate and invest the proceeds in highyielding
securities. Richard will begin to
receive 5 percent of the value of the
trust each year.

Richard will receive a very substantial
addition to his retirement income when
he reaches age 65. He also gains an
immediate tax deduction which significantly
reduces his current income tax
liability.

He is, of course, delighted that his
trust arrangement also will provide a
major gift to a charitable institution he
has long supported.

A Final Word
The charitable remainder trust can be tailored
to meet your individual needs and objectives.
It can be a vital and rewarding part of
your financial, retirement and estate planning.
It can be a means of increasing your own
spendable income or providing a reliable
income for another person, while carrying out
your philanthropic objectives.

We will be pleased to give you further information
about the tax benefits and flexibility of
the charitable remainder trust. There is, of
course, no cost or other obligation. Feel free to
call or write us at your convenience.


Figures in our examples are based on average interest rates, and may be different at the time of a gift. The federal estate tax is scheduled to be repealed in 2010. However, Congress may act to reinstate the federal estate tax sometime during 2010. Tax information provided herein is not intended as tax or legal advice and cannot be relied on to avoid statutory penalties. Always check with your tax and financial advisors before implementing any gift.

Sutter Tracy Community Hospital Foundation
1420 N. Tracy Blvd.
Tracy, California 95376

Bob Green
Executive Director
(209) 832-6052
greenrd@sutterhealth.org
Michele Speich
Fund Development Coordinator
(209) 833-2367 
speichm@sutterhealth.org