Trusts, Pooled Income

Trusts and Pooled Income from Annuities

You do not have to be "super rich" to provide for us in your estate plan. By remembering us when you develop your estate plan, you provide a lasting legacy of support while also receiving significant tax savings. Many people realize that by leaving money to us in their wills they allow us to continue our good work even after they are gone. What many people do not realize is that there are also ways for them to give us charitable gifts that also pay them back.

They include: Charitable Remainder Trusts, Pooled Income Funds, and Gift Annuities

No matter which type of gift you choose, the following benefits may apply: Reduce and/or eliminate capital gains tax on gifts of appreciated assets (e.g. stock); Potentially increase your income; Obtain a charitable deduction; and Avoid estate tax.

Gift Annuities

A gift annuity is a contract; a guaranteed payment in return for a gift. You make a charitable contribution to the American Red Cross of Santa Monica and, in return, the American Red Cross promises to pay a fixed dollar amount, based on your age, for life. You can also make this gift to benefit a loved one.

The American Red Cross of Santa Monica Gift Annuity can only be written to benefit, at most, two people both over age 55. The minimum amount to establish a gift annuity with the Red Cross is $5,000.

How Does a Gift Annuity Work?

You make a gift of cash or securities to the American Red Cross of Santa Monica. You receive payments yourself, or designate another person to receive them (the minimum age for an income beneficiary is 55). The rate of return and tax deduction you receive depend on the annuitant's age at the time of investment. The older you are, the higher the tax deduction and the higher the payments you will receive.

What Are The Benefits Of Gift Annuities

• You are guaranteed fixed payments for life.
• You take an income tax deduction for a portion of your gift annuity in the year it is given.
• A portion of each annuity payment may be tax-free over a certain term of years.
• You reduce capital gains tax when you fund your annuity with appreciated assets.
• Your gift may help reduce federal estate taxes.

Pooled Income Fund

A Pooled Income Fund is an investment fund maintained by the American Red Cross that pays income in monthly installments. Donors make irrevocable gifts to the Fund, and these gifts are "pooled" together and invested. The net income from the fund is distributed to donors for life. When you or your beneficiary pass away, your share is withdrawn from the Fund and used by the American Red Cross of Santa Monica for its programs.

How Does a Pooled Income Fund Work?

You make a contribution to the Fund and name one or two beneficiaries (yourself and your spouse, for example). The life income beneficiary you name receives payments from the Fund for life. When the (last) beneficiary dies, your share---called the remainder interest---is removed from the Fund and turned over to the American Red Cross of Santa Monica for its programs. The minimum age for a Pooled Income Fund participant is 40.

What Are The Benefits Of A Pooled Income Fund?

• You get a charitable gift deduction.
• The amount of the deduction is determined by IRS tables, and based on the number of beneficiaries, their ages, the amount you contribute, and the rate of return of the fund.
• You may reduce capital gains taxes on gifts of appreciated securities.
• Your interest in the Pooled Income Fund is not taxed as part of your estate when you pass away.

Charitable Remainder Trust

A Charitable Remainder Trust (CRT) is a gift in trust to the American Red Cross of Santa Monica. A CRT pays you, or someone you choose, income for life or a term of years. When you pass away, what's left in the trust---the remainder---goes to our charity.

How Does a Charitable Remainder Trust Work?

When you give cash or stock to the trust, you receive an immediate income tax deduction. The assets are removed from your taxable estate. When the trustee sells appreciated assets, no capital gains tax is paid. In addition, the assets are reinvested so you can receive the taxable income for life.

CRTs are structured in two ways: fixed payments or variable payments. A fixed payment trust (also known as a Charitable Remainder Annuity Trust) pays the income beneficiary an annual amount, selected by you, which is not less than five percent of the initial gift principal. A variable payment trust (also known as a Charitable Remainder Unitrust) pays a fixed percentage (not less than five percent) multiplied by the fair market value of the trust's principal. Since the trust principal can increase or decrease in value, the payment is variable.

What Are The Benefits Of A Charitable Remainder Trust?

• You get a federal tax deduction in the year the Trust is given.
• You avoid capital gains tax on gifts of appreciated assets, allowing the entire principal to be reinvested.
• Undistributed earnings in the Trust accumulate tax-free.
• Selling and reinvesting the Trust's assets can create a diverse investment portfolio.

Other Issues to Consider:

• There are minimum gift levels for Life Income Gifts. (For American Red Cross, the minimum amount for both a Charitable Gift Annuity and Pooled Income Fund is $5,000.)
• There are minimum age requirements for gift annuitants and beneficiaries. (For American Red Cross, the minimum age for a Charitable Gift Annuity beneficiary is 55; and 40 for a Pooled Income Fund participant.)
• There can be legal fees for establishing and maintaining a Trust, and a fee when you transfer ownership of property to the trustee. (Note: the American Red Cross of Santa Monica will not act as trustee.)
• Federal and state requirements can set restriction on the terms of trusts, such as how assets are paid to beneficiaries and how assets can be used.

Retirement Assets

If you've made the decision to include a gift of cash to us in your estate plan, you may want to consider making a charitable gift from your retirement accounts instead of from another source. Many people accumulate significant retirement funds through IRA and 401(k) accounts and typically plan to pass them to children or loved ones. However, retirement assets are subject not only to estate tax, but also an additional income tax---bringing the total tax on these assets to as much as 80%. This diminishes their value as an asset passed to heirs. Giving retirement assets to us is simple---just name the American Red Cross of Santa Monica as a beneficiary---and it may eliminate much of the tax. In turn, another asset that is not taxed so heavily may be designated for heirs.

Life Income Gifts give you the advantage of maximizing both your charitable gift and your tax savings. And each of the ways of giving described has both advantages and limitations. If you are interested in one of these charitable gifts, please contact the American Red Cross of Santa Monica at (310) 394-3773 x 104. We would be happy to help you determine how these arrangements may work for your particular circumstances.

You can also contact us by email: Johnp@redcrossofsantamonica.org