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Planned Giving Officer Keith Johnson explains Charitable Remainder Trusts and how the Regency Foundation can help you establish one.
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Show Transcript:
Hi, my name is Keith Johnson, Planned Giving Officer at Cairn University and Director of The Regency Foundation. Welcome to the continuation of our wealth planning podcast series. Throughout this series we hope to provide practical ideas on how to establish Godly wealth management habits that can be applied to your life.
We have been focusing on how to properly manage through 13 wealth management issues that most of us will face in our lifetime. Most of the financial issues we face will result in some significant tax consequences. The one tax savings tool that Congress has allowed to remain in the new tax law, is charitable giving. Contributions made to a qualifying charity such as Cairn University is by far the best way to reduce or even avoid paying taxes.
There are a number of charitable giving techniques and tools available to help make charitable giving as easy as possible. Using one of these tools or techniques is referred to as Planned Giving. Many of these Planned Gifts do not require you to give up assets or income today. Many of our donors choose to make deferred gifts. Many times, these deferred gifts can be significant and are powerful ways to build a lasting legacy. Selecting the right charitable giving technique, however, is really important.
Today, I want to focus on a Planned Giving tool that can offer a way to provide a wonderful deferred gift to the University, plus give you a steady stream of income for the remainder of your life. In addition, when this Planned Giving vehicle is funded, you receive a significant income tax deduction to immediately reduce your taxes.
The name of this planned giving tool is a Charitable Remainder Trust. Donors who establish a Charitable Remainder Trust during their lifetime will create an irrevocable vehicle that can benefit one or more qualified charities upon their death. Setting up a Charitable Remainder Trust will require an attorney to write the document. In addition, a trustee must be appointed to manage the funds and administer the trust.
At Cairn University we have The Regency Foundation which is qualified to serve as your trustee. We can also provide the names of several attorneys to help you write the document.
Once the document is written and the trust is funded, the trustee is responsible for distributing a stream of income either for life or for a specified number of years, depending on the desires of the donor.
Interest rates currently paid to donors are very attractive. The minimum rate is currently 5%. The actual rate you would receive is determined by a number of factors including: your age, number of years income is expected to be paid, and whether the income is to continue to your spouse after your death. These factors determine not only the amount of income paid, but also the amount the donor receives as a charitable deduction.
As an example, consider a donor who is interested in establishing a Charitable Remainder Trust with $500,000. Assuming the donor is age 70 and wants to receive fixed income for life. The current interest rate is 5.1%. That means this donor could expect to receive $25,500 per year until he passes into eternity. In addition, this donor would be able to deduct $223,255 on his income tax return. If he could not use the entire deduction this year, he can carry the remaining deduction forward until it is used up.
The reason the donor cannot deduct the entire $500,000 is because the IRS has a formula that takes into account the fact that he will receive $25,500 per year for life. That reduces the amount of the charitable deduction in accordance with current tax law.
But there is more good news. The annual income received is divided into two portions. The first portion is the tax free portion which in this example is $17,416.50. The remaining 8,083.50 is the only portion that represents taxable income to the donor each year. In other words, you receive a significant tax break on the income given each year.
I don’t want to complicate things too much, but just be aware that there are other options as well, where you can receive an income based on the actual value of the investments in the trust each year. That means as the account grows over time, your income would grow with it.
For the Christ follower, one of the things many of them want to accomplish with their life, is to establish a legacy after their death that will make a significant difference in the lives of people. A charitable Remainder Trust can do just that. Upon the death of the donor, the Trustee is responsible for the distribution of the funds remaining in the trust. The remaining portion is paid out to the charity or charities named as beneficiary by the donor. Some people establish a trust of this nature and name Cairn University as sole beneficiary. Others name the University along with their church and perhaps a mission organization as beneficiaries. Whatever the donor wants to accomplish, we can help to make happen as long as it is lawful.
If you are interested in establishing a Charitable Remainder Trust, I can help explain all of the variables and options available to you. I can also provide illustrations in writing that show exactly what you can expect and how these vehicles work.
We are so grateful for the significant number of donors who have already given to the University through their Charitable Remainder Trust. Your support provides scholarships and grants to some 90% of our student body.
At Cairn University and The Regency Foundation we want to be a valuable resource of information and ideas you can use in a practical way. To that end, we are offering one hour of financial planning consultation at no charge to you. If would like to take advantage of this benefit or if you have any questions about today’s topic, feel free to contact me by email at [email protected].
Thank you for your generosity and I look forward to sharing next month’s Advancement podcast.
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