Trusts fall into two main categories:  Charitable Remainder Trusts and Charitable Lead Trusts.

Charitable Remainder Trusts

If you need current income, or future income for your retirement years, a charitable remainder trust can provide income to you for your life or for a term of years not to exceed 20.  You will also qualify for a current income tax deduction and avoid the capital gains tax on the property used to fund the trust.

To set up a charitable remainder trust the donor transfers assets, such as cash, securities, or real estate, to a trust created by the donor which in turn pays the donor, or other non-charitable beneficiary, an income for life or for a term of years (not to exceed 20).  The pay-out from the trust must be at least 5%.  Upon the death of the income beneficiary, or the expiration of the term of years, the trust ends and the principal passes to the Bernardine Franciscan Sisters.  The donor can often avoid capital gains tax, increase income, and save estate taxes. There are two basic types of charitable remainder trusts:

Annunity Trust:  The annual income is a fixed percentage of the trust’s initial value and provides income of a fixed dollar. Additional contributions to the trust cannot be made.  Annuity trusts are usually created with assets worth $250,000 or more.

Example: Mark Jones creates an annuity trust with $250,000.  He will receive $17,500 each year for the rest of his life, even in years when the trust does not produce sufficient income to cover the required distribution.  The annuity trust must pay out $17,500 even if this income must come from the principal.

Unitrusts: The annual income received is variable, based upon a fixed percentage of the fair market value of the assets of the trust, as re-valued each year. This allows for a variable payout from year to year, in contrast to the fixed dollar amount payout from the annuity trust.  The unitrust is often used when inflation and its effects on the future purchasing power of a fixed income is a concern. There are other income variations available with this type of trust and additional contributions can be made to the trust. It is a highly flexible gift plan. Unitrusts are usually created with assets worth $250,000 or more.

Example: Mrs. Black creates a trust worth $250,000. The trust has a 7% payout rate.  This year she receives $17,500 income, or 7% of $250,000. In a year, the principal grows to $255,000.  Next year, she will receive 7% of $255,000, or $17,850. However, unitrust income fluctuates with the market value of the investments in the trust.  If the principal is worth $245,000 the nest year, she will receive 7% of $245,000, or $17,150.

Charitable Lead Trusts

A donor creates a Charitable Lead Trust by transferring ownership of an asset to a trust.  The trust gives the income, or percentage of the income, to the Bernardine Franciscan Sisters each year for a period of years (usually 15-20).  At the end of the period of years, the trust assets are given back to the donor or to named beneficiaries. The lead trust typically is used with assets with a potential for continued appreciation. The trust permits the assets to be transferred to other family members at a low transfer cost.

Utilizing the lead trust, the donor may leave a significantly larger inheritance to his or her heirs than he or she could have left via a will or other trusts.

Note:  At this time, the Bernardine Franciscan Sisters do not act as Trustees for Charitable Remainder Trusts or Charitable Lead Trusts.  The donor would have to select his/her bank of choice to administer and be Trustee for the trust.

For questions or further information Contact Us