Planning A Charitable Annuity Trust

Not commonly known by many people, planning a charitable annuity trust as part of their estate plan permits them to continue to support a particular charity or charities they have held dear and supported during their lifetime.

In fact, they have discovered that while supporting their favorite charity, they may even be able to increase the amount of money and assets they can leave to their loved ones.

By establishing a charitable annuity trust, more and more people whilst still taking their share of looking after the common good by paying their annual tax dues are also able to support their favorite causes and seeing the fruits of their life's labors go to a good cause.

By planning a charitable remainder annuity trust they can enjoy the best of both worlds. A charitable annuity trust is custom designed and individually managed trust that will enable people approaching retirement age to retain a fixed income and make a future gift to charity. The fund can be programmed to last until the donors pass on or for a fixed period. During the term that the fund is active the donors enjoy a fixed income and are able to claim an income tax deduction.

A trustee, who will be appointed to manage the fund's assets, will be ordered to provide a fixed dollar income to one or more beneficiaries that have to be named by the donor. If the fund is being managed efficiently then the payouts will amount a considerable percentage of the trust's assets. In any event it should be no less than 5% of the trust's value when it was initially established.

Once the decision has been made to establish a charitable annuity trust, then a trust document tailored to the needs and desires of the donor has to be drawn up. This is usually done by the trustee who has been appointed by the donor. In most cases, if the assets are not liquid, they will be sold of by the trustee to guarantee a form of liquidity in the fund. This is to allow future investment. If, on the other hand, the principal asset is a high net earning parcel of property, the trustee may elect to sell of only part of the assets. The reason for this may be that the trustee may feel that the return on investment on the properties may not match what can be earned be investing somewhere else.

Whatever the trustee decides and how well the fund is managed, determines the earnings of the charitable annuity trust for the duration of time it will be in operation. This sum will determine the amount of income you will be liable to receive. Once the donor passes away, then the trust fund and its assets are transferred to the charity or charities of the donor's choosing. The beneficiaries receive fixed income for their life or a specified period of years.

This is why it is very important that the correct trustee is appointed to manage the fund for its duration. Another principal reason is that once the fund has been established, the donor has very little or no say in how the fund can be managed.

The donors have to clearly establish the following significant facts before the fund is established and funds are deposited into it.
  1. The income beneficiaries of the fund.
  2. The charitable beneficiaries of the fund.
  3. The maximum annual payout rate for the trust
  4. The annual frequency of payments ( either monthly, quarterly, half-yearly or annually)

Once these issues have been ascertained then the donors can sit back, and enjoy the security of their fixed monthly income that their charitable annuity trust will afford them.