Charitable Remainder Annuity Trust
A Charitable Remainder Annuity Trust shares many common features with the Unitrust. The basic difference is that it pays a lifetime income based on the initial value of the assets funding the trust. Like the Unitrust, the payout rate must be at least 5% of the initial fair market value of the gift. So, if a donor uses $100,000 in appreciated securities to establish an Annuity Trust and stipulates a 7% payout rate, his/her annual income would be $7,000 each year, regardless of the trust’s performance. This type of situation gives him/her the security of knowing from year to year what his/her income will be.
If you establish an Annuity Trust, you will receive a deduction for the present value of the charitable remainder interest, and you can avoid capital gain tax on the transfer of appreciated long-term securities. Typically, the allowable charitable deduction from an Annuity Trust is slightly greater than from a Unitrust when the initial value and cost basis of the assets gifted are equal. (Additional contributions to this trust are not allowed.)