If you like to give to charity, you hold CDs, a money market, or stock, and are in need of a steady income stream today or at a later date, a split-interest gift, may be an excellent solution.
What exactly is a split interest gift? It is one where you make a gift to charity and in exchange the charity provides you with an income payment over your lifetime. Examples of split-interest gifts include Charitable Gift Annuities, Charitable Remainder Trusts, or Charitable Lead Trusts among others.
Charitable Gift Annuities
A charitable gift annuity is a gift made to a charity that in turn pays you guaranteed, predictable, tax-favored payments for life. The income amount is determined using nationally established rates based upon your age at the time the gift is made and is generally more than traditional vehicles such as money markets and CDs. If you have an asset that is generating little to no income, and you would like to make a gift to charity, a charitable gift annuity may be right for you.
Charitable Remainder Trusts
A charitable remainder trust (CRT) is a tax-exempt, irrevocable trust. It is designed to generate income for a designated beneficiary, such as you or a loved one, and benefit charity. You transfer assets into the trust, receive a partial tax deduction for the transfer in the year it is made, and the beneficiary receives income for a term of years, not to exceed twenty year, or for the life of the beneficiary. At the end of the term, the remainder goes to one or more charities specified by the trust document.
You have a lot of options when establishing a CRT. Options include naming both the beneficiaries of the income and the charitable remainder, the term of the CRT, the ability to change the charitable beneficiary, the choice to receive a fixed dollar amount (annuity) or fixed percent, the frequency of payments, and more. That is why it is essential you engage an attorney to draft documents.
CRTs can serve as a wonderful estate planning tool. They provide a strategic way to manage the transfer of tax-deferred assets such as retirement funds. They can reduce estate taxes, and they can achieve your charitable goals.