Deferring Income through Unitrusts and Gift Annuities
A “flip unitrust” can work well for clients who: (1) want to make a gift today, obtain a tax deduction and receive lifetime income, but postpone most or all of the income until some future date (the year they retire, for example), and (2) want to make a gift and at the same time arrange for young grandchildren (or children) to receive payments when they start college – five, ten or 15 years in the future. Income deferral enables the trust to grow considerably, tax free, before payments are needed.
The flip unitrust is a special form of charitable remainder trust that initially pays little or no income, depending on how the trust is funded or invested. The trust assets may appreciate greatly in value for several years. Later, after a specified date or “triggering event,” the trust “flips” to become a standard unitrust that pays beneficiaries a fixed percentage of, say, 5% or 6% of an expanded trust principal. Most donors who set up unitrusts want their income to start right away. But the “flip trust” is ideal for people who want to reduce taxes, save more for retirement, establish a college fund, or achieve other goals – while helping a worthwhile cause, as well.
Deferred payment charitable gift annuities offer a different plan: The donor transfers cash or securities in exchange for a charity’s promise to pay a fixed annuity to one or two individuals for life with the first payment occurring at least one year after the date of the gift. Most charities offer deferred payout rates based on recommendations of the American Council on Gift Annuities. Payout rates are higher for deferred annuities than for immediate payment gift annuities: the longer the deferral period, the higher the payout rate. The amount transferred to a charity, less the present value of the lifetime annuity retained for one or two persons, is deductible. Charitable deductions are higher for deferred payment annuities than those available for immediate payment gift annuities. In recent years, many donors have established “flexible” deferred gift annuities that allow them to extend the first payout beyond the date originally selected, and receive large annual payments. Payments can start earlier, as well, at reduced amounts.
Copyright © by R&R Newkirk. All rights reserved.
The flip unitrust is a special form of charitable remainder trust that initially pays little or no income, depending on how the trust is funded or invested. The trust assets may appreciate greatly in value for several years. Later, after a specified date or “triggering event,” the trust “flips” to become a standard unitrust that pays beneficiaries a fixed percentage of, say, 5% or 6% of an expanded trust principal. Most donors who set up unitrusts want their income to start right away. But the “flip trust” is ideal for people who want to reduce taxes, save more for retirement, establish a college fund, or achieve other goals – while helping a worthwhile cause, as well.
Deferred payment charitable gift annuities offer a different plan: The donor transfers cash or securities in exchange for a charity’s promise to pay a fixed annuity to one or two individuals for life with the first payment occurring at least one year after the date of the gift. Most charities offer deferred payout rates based on recommendations of the American Council on Gift Annuities. Payout rates are higher for deferred annuities than for immediate payment gift annuities: the longer the deferral period, the higher the payout rate. The amount transferred to a charity, less the present value of the lifetime annuity retained for one or two persons, is deductible. Charitable deductions are higher for deferred payment annuities than those available for immediate payment gift annuities. In recent years, many donors have established “flexible” deferred gift annuities that allow them to extend the first payout beyond the date originally selected, and receive large annual payments. Payments can start earlier, as well, at reduced amounts.
Copyright © by R&R Newkirk. All rights reserved.
