Planned Gifts

Several types of arrangements may be established that take effect either during the donor's lifetime of through a will. Some can be set up to provide a life income for the donor or donor's loved ones.

Trusts
A trust is created when assets are transferred to a trustee to be held on behalf of specified beneficiaries during the trust's existence. Most often the benefit from a trust is the payment of the income earned by the assets. When the trust expires, the remaining property passes to another beneficiary.

Charitable Remainder Trust.
A charitable remainder trust is a trust that pays to the donor either a fixed or variable income for the beneficiary's life, or for a fixed term not exceeding 20 years, or a combination of the two. When the trust expires, the remainder is distributed to a charitable beneficiary.

Charitable remainder trusts offer a great deal of flexibility. Payments may be made to the donor for life and then to a spouse or other beneficiary after death. A charitable remainder trust may be set up during one's lifetime or may be established by a will. The eventual distribution to the Skagit Community Foundation takes effect only upon the death of the trust's income beneficiaries.

Benefits of a Charitable Remainder Trust
The charitable remainder trust enables an individual to make a substantial deferred gift to a favored charity while retaining a right to payments from the trust. Under the right circumstances use of such a trust offers multiple tax and non-tax advantages, particularly to the individual who owns substantially appreciated property. When combined with a wealth replacement trust the full value of the estate can be preserved for designated beneficiaries.

The advantages of a charitable remainder trust can also include an immediate charitable deduction resulting in reduced income taxes, an increase in current cash flow, avoidance of capital gains upon the sale of any appreciated property, the eventual reduction or elimination of estate taxes, and the satisfaction of knowing that property placed in the trust will eventually pass to charity.

Charitable Lead Trust.
A charitable Lead trust is the reverse of a charitable remainder trust. A charitable lead trust, which can be created by a deed of trust or a will, allows donors to provide an annuity or unitrust payment to a fund and the Skagit Community Foundation for a certain number of years of any duration after which the principal is paid to the donors or any other non-charitable beneficiary.

Donors do not receive a charitable deduction for federal income tax purposes on the creation of a lead trust unless they choose to be taxed on the trust income. Donors can avoid a negative tax impact by funding the lead trust with tax-exempt securities.

Charitable lead trusts make the most sense for a donor whose family will be relinquishing the income from the gifted property during the term of the lead trust.

Charitable Lead Unitrust.
A donor may transfer assets to an irrevocable charitable lead unitrust (CLUT), sometimes referred to as a charitable income unitrust. The trust then pays a fixed percentage of its assets to a qualified charity for either a set number of years, or the lifetimes of individuals. When the term of the trust has ended, the remaining assets are distributed to the donor, his or her spouse, heirs, or other individuals.

Valuation of assets is required every year to determine the amount of the payment for the year. Payments to charity will vary from year to year, depending upon the investment performance and expenses of the trust.

After the lead (or income) period has expired, if the beneficiary of the trust is other than the donor, or his or her spouse, there may be a taxable gift. The gift tax would be based on the present value of the beneficiaries' right to receive the trust remainder at some future time. This calculation is dependent upon the term of the trust, the amount payable each year to the charity, and the AFR (applicable federal rate) at the time of the transfer.

Estate Tax Reduction
Most CLUTs are set up as non-grantor trusts, where the ultimate beneficiary of the trust assets is someone other than the donor or his or her spouse. Such CLUTs provide no income tax deduction to the donor, but do allow the transfer of assets to children or grandchildren, with substantial valuation discounts. For example, at a 5.4% AFR, a 10-year CLUT, paying 7% annually to a charity, offers a 50% discount from market value. The same trust, over a 15-year term, offers a 65% discount from market value; over 20 years, a 75% discount from market value is achieved.

The CLUT is an excellent way for affluent individuals to meet charitable obligations, as well as make discounted, deferred transfers to their heirs.

How Charitable Lead Trusts Differ
The charitable lead trust is established by the donor to which he or she then transfers assets.

Under the terms of the trust, the trustee is directed to make payments to a specified charity or charities for either a set term of years or the lifetime of one or more named individuals.

After the period of time has passed, the remaining trust assets pass to the persons named in the trust, generally children or grandchildren of the donor or other heirs.

Two Types of Payment
Charitable Lead Annuity Trust: A fixed dollar amount is paid out to the charity each year. The dollar amount does not change.

Charitable Lead Unitrust: A fixed percentage of the trust value is paid out to the charity each year. Payments will vary as the value of the assets fluctuates.

Two Types of Tax Benefits
Non-Grantor Lead Trusts: This type of lead trust is designed to produce a savings in the federal estate taxes by reducing the current value of a gift, which will eventually pass to the donor's heirs. Non-grantor lead trusts do not produce an income tax deduction.

Grantor Lead Trusts: By retaining various rights under the trust arrangement it will be classified as a "grantor trust" and, although an income tax deduction will be allowed to the donor, all of the later earnings of the trust will be taxed to the donor.

Life Estates
Life estate, such as remainder interest in a residence or farm, do not provide a life income, however, donors can gift their home or farm to a fund at the Skagit Community Foundation. This allows them to take a charitable income tax deduction for the present value of the remainder interest and to escape potential capital gains tax on the property's appreciation. The donor deeds the property to the Foundation and retains the right to live there until death. When the life estate terminates, the real estate is sold and the proceeds are used to support the organizations or purposes specified by the donor.

Charitable Gift Annuities
Charitable gift annuities make it possible for donors to assist the community in the future while providing lifetime income for themselves.

A charitable gift annuity is a contract between the donor and the Skagit Community Foundation. It gives donors the opportunity to make a charitable gift and secure a stream of income for life. With this agreement, the donor transfers assets to the Foundation in exchange for a commitment by the Foundation to pay them a fixed and guaranteed payment for the remainder of his or her lifetime. The total payment does not change once established. Upon the death of the donor, the remaining principal and any income that may have accrued is retained by the Foundation to carry out the donor's charitable intentions.

Life Insurance Policies
People often purchase life insurance policies when they need protection for either their family, business, or estate. Later in life, they may find that they do not need as much insurance. As a result, they sometimes find it desirable to use insurance policies to make charitable gifts.

Donors receive a federal income tax deduction for the amount of cash surrender value in the year of the irrevocable transfer of the policy to the Foundation. Any type of fund may be established with an insurance policy.