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Wills and Charitable Estate Planning

Gifts that pay you an income for your lifetime

Charitable Remainder Trusts (CRT)

Charitable remainder trusts are wonderful tools when one desires to make a planned gift to a charity and has capital assets with substantial capital gain, which are subject to hefty capital gains taxes. For example, let’s say that Don Donor, a retired farmer, has two hundred acres of good farmland in addition to the fifty acres where he and his wife live. If Don sells that two hundred acres of farm land outright, he will have to deal with a substantial capital gains tax since he bought the land years ago for $10,000 and today it is worth $1 million. Currently, he rents the land for $5,000 a year.

If, instead of selling the farm land, he transfers the land to a Charitable Remainder Trust, his financial situation improves greatly. After the land is transferred to the trust, the Trustee can sell the land, but no capital gains tax is due because the CRT is a tax-free entity. After the sale, the trust can buy investments with higher income return and good growth potential to better secure his future and pay much more income today. In this case, Farmer Donor’s income would increase from his rent payment of $5,000 per year to about $50,000 per year, an increase of $45,000 per year. Over his and his wife’s lifetime, that income should not decrease and may increase, depending on market performance. At the death of both Don and Mrs. Donor, the remainder of the trust will be a charitable gift to benefit those assisted by Harvest Aviation. (Note: Farmer and Mrs. Donor can be the Trustees of their own CRT if they so desire.)

Charitable Gift Annuities (CGA)

Like CRTs, CGAs can fix a myriad of financial problems, provide additional income and lower income taxes, capital gains taxes and estate taxes. For example, Bob and

Barbara and Bob Benefactor have a $500,000 certificate of deposit, which is paying 1.5%, or $7500 per year. Both Bob and Barbara love the work Harvest Aviation does, Barbara having volunteered there for several years, but they are concerned that they may need those funds as they age.

If they took the $500,000, after the certificate of deposit matured, and placed it in a CGA, they accomplish their charitable goals and improve their financial situation considerably. Their CGA payout rate is now 7%, a nice improvement over the prior 1.5% with the certificate of deposit. Instead of earning a modest $7500, their payout amount is now $35,000 per year. Also, they receive a nice charitable deduction (about $250,000) which they can use in the year of the gift and for five years thereafter. Another really nice benefit of a CGA is that the income payments they will receive from it will be income tax free for a number of years. If they don’t need or want the extra income, a CGA can be structured so that it can just sit and grow until Bob and Barbara decide they want that extra income. Of course, the CGA is continuing to grow until they request their payments to begin. (Note 1: CGA payments are fixed and will not go up or down for their lifetimes. Note 2: Payout rates for CGA are determined solely by the age of the annuitant(s) at the time of the gift. Note 3: At the death of the survivor of Bob and Barbara, whatever amount is left in the annuity is a charitable gift to Harvest Aviation.) 

Contact: If you, or your attorney, have questions, or need additional information, please contact Jim Secrist, JD (434) 390-6953 or jimsecrist@gmail.com

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