Charitable Remainder Trust

Make a major gift
Retain life income
Save on taxes and estate costs
Retain professional management
Convert low-yield appreciated investments to increase income return without penalty of capital gains tax

A charitable remainder trust is one of the greatest tax and estate planning tools available for Christians. Many are finding that they can experience the joy of stewardship during their lifetimes by placing assets in a life income plan such as the charitable remainder trust. A charitable remainder trust allows you to experience the satisfaction of making a major gift to Northwest University during your lifetime and still retain the income those assets earn.

What is a Charitable Remainder Trust?

The charitable remainder trust is a trust that allows you to make a charitable gift, receive a charitable tax deduction, receive income payments throughout your lifetime, and avoid the imposition of taxes.

Here's how it works. You, as the "Grantor," transfer money, securities, or property to Northwest University, as "Trustee," in return for a trust agreement which pays you income for life. The Trustee will handle all the legal and fiduciary responsibilities for you, but you retain a beneficial interest in the income from the property. At the end of the trust, the trust assets are distributed to the University. You may also designate other ministries as partial beneficiaries (such as local church, district ministry, or missions).

What Type of Property Should I Use?

Cash, of course, works... but to obtain maximum tax advantage property that has appreciated in value is ideal to transfer to a charitable remainder trust. The most common types of appreciated property are real estate and securities. (Remember, many highly appreciated stocks pay little or no dividend.) By funding a properly created charitable remainder trust with appreciated properties, federal law allows the trust to sell the appreciated property without the imposition of up-front capital gains tax. The Trustee will handle this for you.

How are My Payments Determined?

As beneficiary, you receive payments based on a fixed percentage agreed upon between you and the University, multiplied by the fair market value of the trust assets. You can make certain choices that will give you a constant payment amount or will provide you with a payment amount that will be recalculated annually and provide a hedge against inflation.

What Will My Payout Rate Be?

By law, the trust payout can be no less than 5%, but may be established at a higher rate. The higher the percentage, the greater your annul income. However, a higher percentage will also reduce your income tax charitable deduction and your remainder gift to ministry.

What are the Tax Benefits of a Charitable Trust?

You are entitled to take a sizable charitable deduction on your tax return in the year you create the trust. The deduction will be based on the term of the trust, the trust payout, and the value of the property transferred to the trust. This amount is the charitable remainder interest which will eventually be received by the University. If you cannot use all the charitable deduction in the year the trust is created, you can carry over the deduction for up to five years.

In addition to the up-front deduction, your trust can often be invested so that part of your ongoing payments are tax free and part is taxed at the favorable capital gains rate. This can be an especially attractive tax savings feature to high income individuals.

Finally, you will not have to pay the up-front capital gains tax on the transfer of appreciated assets to fund your investment.

Are All Charitable Trusts the Same?

While the requirements for qualification as a charitable trust are strict, there are a number of choices that can be made to fit the charitable remainder trust to your particular needs. While one person may need a consistent, steady source of income, another may want the funds to compound and grow tax free for their retirement years. A third person may want payments to continue to family for ten years. All of these objectives, and more, can be met with a charitable remainder trust. Because of the tremendous tax advantages, a charitable trust cannot be changed once established. It is important, therefore, to carefully develop the trust take care of your current and future needs.

Who Will Manage My Trust?

Northwest University has an agreement with the Assemblies of God Foundation (a member of the Assemblies of God Financial Services Group) to provide trust management services. The Foundation has experts who can tailor an investment strategy for your charitable remainder trust taking into account your objectives and risk tolerance levels. The Foundation will provide you with quarterly and yearly reports telling you how your trust performs and how to report your unitrust payments on you tax return.

What Effect Does a Charitable Trust Have on My Estate?

By establishing a charitable remainder trust, you may be able to reduce or eliminate estate taxes and probate costs. Because you transferred the property to the Trustee in you lifetime, it is not part of your estate for the purposes of probate. It may also be completely excludable from your estate for estate tax purposes. At the end of the trust, your gift passes immediately to ministry without probate interference.