Charitable Trusts

A charitable gift annuity is similar in some regards to a charitable lead annuity trust. The difference is that, rather than a third party trustee or annuity company, the donor gives the money directly to a charity, which then agrees to pay the donor income derived from the gift for his or her lifetime. Thus the charity that is the remainder beneficiary serves as the trustee of the principal (corpus) of the trust until the donor passes away. Typically the donor and the donor's spouse receive the payments for their joint lifetime.

A number of larger charities offer this service to donors wishing to make their donation part of a comprehensive financial plan. The Red Cross is one example. The service is also frequently used by university endowment funds, as these organizations typically have the financial acumen to handle this sort of service, and a unified investment strategy which can serve to make the best use of the assets.

When the beneficiaries of the annuity pass away, the charity gets to keep the remaining assets. The charity may also keep any income derived from the gift in excess of the income paid to the beneficiaries. Thus the charity may benefit immediately, depending on its investment strategy and performance.

As far as the donor is concerned, there is little difference in effect between a charitable gift annuity and a charitable lead annuity trust (CLAT). In either case, the donor receives fixed income for life, and the remainder goes to the charity. A donor may be able to negotiate better terms from one form or the other, however, so if interested in setting up one of these trusts, it would be wise to investigate both of these options.

The benefits of these annuities are many. As with the standard charitable remainder unitrust, a charitable gift annuity can allow you to make a charitable gift today, receive a fixed, reliable income for life, avoid capital gains taxes, support your favorite charities, and potentially even take an immediate charitable tax deduction. Consult your attorney and tax adviser for more details.

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