Charitable Gift Annuity and
Charitable Remainder Trusts
A charitable gift annuity is a simple contract between you and a charity.
A charitable gift annuity is a simple contract between you and a charity. Unlike other life income plans, a portion of the income is free of tax. Annuities work best for those who are 70 or older. The older you are when establishing (or triggering) the annuity, the more income received. Save the Redwoods League is currently not licensed by the State of California to issue gift annuity contracts, however we can work with other organizations to administer such an arrangement to benefit our work. We would be happy to provide an illustration and information about each of these institutions.
General Introduction to Charitable Life Income Plans
Lifetime Income to You
You may fund the charitable life income plan with real estate, stock, cash or a combination of all of these. Assets placed in a life income plan, including cash, stock, real estate or another type, are invested by the trustee to pay you income for the rest of your life. After the death of all income beneficiaries, what remains in the plan will pass to charity.
There are some exceptions to this arrangement depending on the type of plan. Some of these features are addressed toward the end of this document.
Your plan may provide you with some important tax benefits:
- An immediate income-tax deduction for a percentage of your gift. The League will be happy to give you an idea of the size of your deduction. Simply provide the age of the income beneficiary(ies) and the payout rate of the plan.
- No tax on the sale of appreciated property. From your point of view, this is often the most important tax benefit. Sometimes thousands of dollars that would have gone to taxes remain in the plan generating income to you or others.
- The plan principal avoids estate tax. Property that might otherwise be subject to estate tax, as high as 50 percent or more, is preserved from estate tax entirely.
Funding a Life Income Plan with Real Estate
Appreciated real estate can be an excellent asset to use. Mature investment properties are frequently earning only 2, 3 or 4 percent of their fair market value per year. When these properties are sold and the proceeds reinvested by the life income plan, earnings often jump to 7 percent or more.
Under ordinary circumstances, owners face substantial tax on the capital gain when they sell rental properties or commercial real estate. Because the life income plan will be selling the property, the capital gains tax is bypassed entirely when the real estate is sold. The same is true of appreciated stock.
Funding a Life Income Plan with Cash or Stock
Gifts of appreciated stock are ideal for funding a charitable remainder trust because the stock can be reinvested for greater income while completely bypassing capital gains tax.
Giving Part of Your Property
Some people find it useful to give an undivided percentage interest of their property into a life income plan rather than all of it. For example, you could place 75 percent of a vacant lot into a charitable remainder trust. When the lot sells you would get cash out directly to you, with the rest going into the trust. The cash is taxable, but the income tax deduction generated by the trust could offset the tax due on the cash received.
Types of Charitable Remainder Trusts
There are two basic types. An annuity trust will pay a fixed amount for the rest of your life. This may be a good option for you if you are about 78 or older. A unitrust will pay a fixed percentage each year, so if the value of the trust principal increases over time, income increases with it. We recommend a minimum trust of $100,000.
By law, the trust must pay you at least 5 percent of principal. You may choose a higher payout rate if you wish. Simply selecting the highest rate possible may not work in your best interest, because trust principal may decline under the strain of meeting the higher rate. As the principal declines, your income would decline with it. On the other hand, a lower payout rate may allow the principal to grow, and your income will grow with it.
Selecting a Trustee
You must have a trustee for a charitable remainder trust. The League would welcome a conversation with you about serving in this capacity. In most instances we will not charge an administrative fee. You also have other trustee options including commercial institutions such as a bank or trust company, an individual with professional experience in trust management, or possibly yourself. There are many complications in acting as trustee for a remainder trust, but you can do this if you understand and comply with IRS regulations.
For More Information
The basic advantages of life income plans are not difficult to understand: avoidance of capital gains tax on the sale of appreciated property, lifetime income, immediate income tax benefits, reduction of estate tax, and the satisfaction of providing for a good cause. There are even ways of helping your heirs that would be more easily discussed in a personal meeting. But the first thing you should do is find out if a life income plan makes sense for you.
Save the Redwoods League will provide you tax and income calculations tailored to your particular situation. This will give you and any advisors who might be involved the information needed to make an informed decision about whether a charitable gift annuity or trust meets your financial and philanthropic objectives. All information is provided confidentially and without cost or obligation. If you are interested in more information, please contact Sharon Rabichow, the League's Planned Giving Officer (415) 820-5828 or srabichow@SaveTheRedwoods.org.
Rozelle Family: Santa Cruz Mountain Redwoods Inspire Annuity Gift
Allan and Pam Rozelle. Photo by Paolo Vescia
Less than an hour from the hustle of California's Silicon Valley is a huge, thick redwood forest rolling over the rugged Santa Cruz Mountains, a perch for viewing the sweeping Pacific Ocean nearby. Redwoods' tops reach out of sight. The ground is spongy with its carpet of rusty leaves. Sweet earth and bay laurel scent the cool air.
Save the Redwoods League and four other conservation groups launched the Living Landscape Initiative (LLI), to protect CEMEX Redwoods and others like it near Silicon Valley.
Motivated by the LLI's goals, Pam and Allen Rozelle, who live in the heart of LLI territory in Santa Cruz, gave a generous charitable gift annuity to each of the Initiative's five organizations (in addition to the League: Land Trust of Santa Cruz County, Peninsula Open Space Trust, Sempervirens Fund and The Nature Conservancy).
"We appreciate the redwoods that we see, and we appreciate the idea that there are other redwoods out there that are worth protecting," Pam said.
In addition to their sense of satisfaction from supporting the forest, she said, their gift provides them with reliable income and a tax deduction.
"We were impressed by the cooperative aspects of the project and galvanized by the $15 million commitment put forward by the Moore Foundation," Pam said. With some securities destined for charity in their wills, news of the Initiative moved them to re-examine their giving plans. "A charitable gift annuity actually offered a higher yield than our current investments, plus tax deductions," she said. "How could we say no to doing well by doing good?"
Read more planned giving highlights:
Donor Will Match Your Gift by Dec. 31!
Thanks to generous redwoods enthusiasts like you, Save the Redwoods League has raised $4 million—half the funds needed—to purchase and protect some of the most magnificent old-growth redwood forest still left in the heart of the Santa Cruz Mountains. You can help raise $100K to double your impact for ancients in Santa Cruz Mountains. Learn more about this matching gift opportunity.