Life Income Gifts: Charitable Remainder Trusts
A charitable remainder trust (CRT) is a life income arrangement that enables you to convert an asset, usually appreciated stock or real estate, into an income stream by making an irrevocable gift of the property. Once transferred into the CRT, these appreciated assets can be sold tax-free and are reinvested into a diversified portfolio. As a result, you have the full fair market value of the gifted property available to produce life income for you.
In addition, your gift will generate a charitable income tax deduction equal to the present value of your future gift. In the year of your gift, this deduction can be taken up to 30 percent of your adjusted gross income. Any unused part of this deduction can be carried forward and deducted from your income in the same percentage for an additional five years.
Hank Mustang (class of '50) and Sally Mustang (ages 76 and 74) invested $50,000 in SLO stock hoping that it would appreciate. It did just that over the years. The stock is now worth over $600,000. Hank is completely retired now. The SLO stock he owns, like many blue chip stocks, pays only a small dividend of 1 percent or $6,000 a year. What he would like to do is sell the stock and reinvest it into a portfolio that is diversified and pays more income. He has included Cal Poly in his will.
If they sold the stock, they would be exposed to a capital gains tax of $110,000 ($600,000 less $50,000 (cost basis) x .20 (federal rate only) = $110,000). Leaving them with only $490,000 to reinvest.
Instead, they decide to fund a charitable remainder trust with the stock that will pay out 6 percent to them each year. By making an irrevocable transfer of the stock into the CRT, they create current charitable income tax deduction of over $265,000. The stock is then sold and the proceeds invested into a diversified portfolio. The Mustangs will now receive 6 percent of the fair market value (initially $36,000) of the trust as revalued each year until the death of the survivor. At that point, the assets remaining in the trust will be transferred to the Cal Poly college/unit/program that the Mustangs had designated.
In addition, any assets transferred into the charitable remainder trust are considered outside your estate for purpose of federal or state estate taxes.
The Cal Poly Foundation can serve as trustee of your charitable remainder trust providing asset management and trust administration services. Many life income donors especially enjoy the fact that the assets in their charitable remainder trust and being professionally managed in a diversified portfolio. The Cal Poly Foundation partners with outside managers Kaspick and Company to provide a high level of service to our donors. To offset the Foundation's out-of-pocket expenses for these services, each charitable remainder trust is assessed a annual management fee of 1.00 percent.
Several useful documents regarding charitable remainder trusts are available on our Forms and Publications page.
To obtain customized calculations on a confidential basis on how a charitable remainder trusts can benefit you and Cal Poly, please contact Stacy Cannon, Director of Planned Giving at (800) 549-2666 or (805) 756-7125, by fax at (805) 756-2711 or email email@example.com.