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Charitable remainder trusts

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‘Swiss army knife’ of planned giving.

By Ret Boney

One donor wanted to share his wealth with his children and provide retirement income for the nanny who had raised him.

Another wanted to make sure his domestic partner would be taken care of after he died.

For both donors, a charitable remainder trust was the vehicle that allowed them to achieve those goals, all while receiving charitable deductions and supporting their alma mater, Davidson College in Davidson, N.C.

“The charitable remainder trust is the Swiss Army Knife of planned giving,” says James Gibert, director of planned giving at Davidson.  “There are so many variations on it. It is so flexible and you can do so many things with it.”

The first donor, a 1945 graduate, owned a valuable piece of real estate he used to fund a trust, with income from the fund to be paid out to his children for 20 years, after which the fund belongs to the college.

By limiting the income payouts to 20 years, the donor was able to get a sizeable charitable deduction for the gift, while providing for his children for an extended period of time.

The donor specified that the trust, once it reverts to Davidson in about 10 years, is to be used to fund maintenance of the college’s science building and, if the value of the fund exceeds $1 million, the excess will go to another charity.

The same donor also wanted to provide retirement income for the nanny who had helped raise him as a child.

To do that, Gibert says, the donor made a gift of stock to Davidson’s pooled income fund, a relative of the charitable remainder trust, from which the nanny received payments for life based on the dividends and interest earned when the donor’s gift was pooled with other gifts and invested.

The donor received a tax deduction on the gift and, when the nanny died, Davidson received the remainder of the fund, helping to fund the college’s academic programs.

The second donor, a Florida native who graduated from Davidson in the early 50s, wanted to provide income benefits to his domestic partner after the donor’s death.

To do that, the donor established a remainder trust through his will, funded by the bulk of his estate after his death, and his estate received a charitable deduction based on the amount of the remainder expected to go to Davidson.

Under the terms of the trust, the donor’s partner will receive income payments for the rest of his life, after which the remainder of the trust will revert to Davidson to be used for scholarships, based on the donor’s request.

“You can fund it with illiquid assets like real estate,” Gibert says of charitable remainder trusts.  “And it’s useful for people who want to provide income benefits for a non-spouse.”

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