GIFTS THAT PROVIDE INCOME

A resourceful way to establish a legacy of hope

Charitable Trusts

What i f there was a way to leave a g i f t to fur ther gospe l min is t ry, lower your taxes and st i l l rece ive income?

With a Charitable Trust, you can do just that. Establish a resourceful stewardship strategy and help families thrive for generations to come.

A Charitable Trust can be a highly effective tool for individuals who want to reduce taxes and give to charity, while also meeting the financial needs of their family.

There are multiple types of designs of trusts that can meet your specific needs. Two types we will explore here are:

� The Charitable Remainder Trust

� The Charitable Lead Trust

The chief distinction between the two is whether the family receives income now (and the charity later) or the family receives assets later (and the charity receives income now). Either way, significant benefits accompany both types of trusts.

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Section I

The Char i tab le Remainder TrustA Charitable Remainder Trust (CRT) is a unique trust agreement through which you can place your assets in a trust and receive income payments from the trust for a predetermined period of time. At the end of the income distribution period, the CRT terminates, and the remaining trust assets are distributed to the charities you have chosen.

When you contribute assets to a CRT, you receive a current income tax deduction equal to the present value of the gift the charity will eventually receive when the CRT terminates. Because CRTs are generally tax exempt, appreciated assets can be gifted to a CRT and later sold without you or the trust owing capital gains tax.

When should a Charitable Remainder Trust be considered?

� When selling an appreciated asset and you desire to optimize its value;

� You desire additional income for yourself or family members during life; or

� You want to make a gift to charity in later years, but would like to have a charitable tax deduction now.

1. John and Mary transfer their appreciated property into a CRT and receive an immediate tax deduction. The trustee sells the property tax free and invests 100% of the proceeds.

2. The CRT pays an income interest to John and Mary for their remaining lives.

3. After John's and Mary’s deaths, the remaining trust assets are distributed to their chosen charities.

Example:

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Considerations for your Charitable Remainder Trust:

Term: You will determine how long the income payments will be made. Typically, income will be paid to you for life (and/or for the lifetimes of one or more other persons designated by you). Or income interest can be paid for a specified period vof time not to exceed 20 years. You can even require the income be paid over a certain combination of lives and terms of years.

Interest Calculations: The payment amounts may be fixed at the time the trust is created and funded. This type of CRT is generally referred to as a Charitable Remainder Annuity Trust because the income payments are is a pre‐established annuity amount that will not change regardless of how the CRT

assets may fluctuate in value. Alternatively, the payment can be based upon a fixed percentage of the trust’s fair market value for that year. This type of CRT is generally referred to as a Charitable Remainder Unitrust.

Taxation: One of the advantages of a CRT is that they are generally tax‐exempt. Therefore, any income and appreciation not distributed as part of the CRT income distributions are retained tax free within the trust for future growth and income generation. However, once the income is distributed from the trust to the income recipients, the distribution will generally be taxable to the recipient.

Section II

The Char i tab le Lead TrustThe Charitable Lead Trust (CLT) is a stand-alone trust created by an individual for a specified term. During the term, the trust makes annual payments to a charity or multiple charities. After the trust term has expired, the remaining trust assets are distributed to named non‐charitable individuals—usually the giver or the giver’s family.

When should a Charitable Lead Trust be considered?

� When desiring to reduce estate taxes on the transfer of assets to future generations;

� You want to make a gift to charity in current years; or

� During an unusually high income year, you have a desire to accelerate future charitable giving tax deductions in the year in which you need it the most.

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Example:

1. John and Mary transfer their income producing, appreciating property into a CLT. The trustee invests the property for growth and steady income.

2. The CLT pays an established income payment to the charities of John and Mary’s choice throughout the trust’s term of existence.

3. After the expiration of the trust’s term, the remaining trust assets are distributed to John and Mary’s family.

Considerations for your Charitable Lead Trust:

Payment Calculations: The payments made to charity through a CLT can be made as a fixed payment amount (an annuity payment) such that the payments to charity will remain constant no matter how the investments perform. Often, this will allow a greater portion of trust appreciation to accrue to the benefit of the grantor or the grantor’s family. Or payments could be structured as a fixed percentage of the trust, valued annually (a unitrust payment) such that payments to charity will fluctuate depending upon the value of the trust assets each year.

Funding the Trust: First and foremost, the asset must be able to reliably produce enough income to make the annual payments to charity and cover the costs of administration. Next, the asset should have the potential to grow in value over time in order to take advantage of the trust’s ability to pass the asset appreciation to your loved ones at the end of the trust term. Often a family limited partnership or a family limited liability company is an effective asset for CLTs.

Limits to Contributions: Most CLTs are structured as annuity trusts and, therefore, you cannot add to the trust after the initial contribution. However, if the trust is structured as a unitrust, you can make additional contributions over time.

Taxation of the Trust: While all charitable lead trusts function in the same general manner, they are not all taxed the same. Different types of CLTs are appropriate for different tax situations. The most important distinction among lead trusts is whether the trust is a “non‐grantor” trust or a “grantor” trust. The most common type of charitable lead trust is the non‐grantor trust, which is useful in helping to reduce estate taxes.

The grantor trust rules allow grantors to control the assets and investments in a trust. The income it generates is taxed to the grantor at his or her tax rate rather than to the trust itself. Your tax advisor will work with you to determine the best type of trust for your tax situation.

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Questions? We’d love to talk.

We welcome the opportunity to answer your questions, and we will gladly prepare for you a personal Charitable Trust proposal for you to discuss with your professional tax advisor and legal advisor.

(800) 782-8227 FocusPlannedGiving@fotf.org FocusPlannedGiving.com

Focus on the Family is a global Christian ministry dedicated to helping families thrive in Christ. We provide help and resources for couples to build healthy marriages that reflect God’s design, and for parents to raise their children according to morals and values grounded in biblical principles.

Disclaimer: Any federal tax information contained in this communication (including attachments) is not intended and cannot be used or relied upon to avoid IRS imposed penalties or to promote, market or advise any other person(s) of such information. The information provided in this booklet is not intended as specific legal advice. State laws vary and are subject to change. We strongly recommend you consult your attorney when considering any legal or tax matter.

Your g i f t can br ing hope to others

Will you be a part of making a difference for families?

When you leave an gift to Focus on the Family, you are generously saying “yes” to strengthening countless marriages, parents and families worldwide. Such a gift could be made through a will, appreciated asset, trust or beneficiary designation. We're happy to help you find the best option for your unique situation.

Our gift to you:

The Focus on the Family Legacy Community celebrates those who invest in the next generation of families through a legacy gift. Our members gain access to a variety of special benefits, as our way of saying “thank you.”

Here are the details your attorney will need:

Focus on the Family Attn: Planned Giving 8605 Explorer Drive Colorado Springs, CO 80920 Tax ID#: 95-3188150 Phone: 800-782-8227 or 719-548-5839

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If you feel called to name Focus on the Family as a beneficiary of a Charitable Trust, would you let us know?

We would love to help guide you in the process and express our deep appreciation of your confidence in the

mission of Focus on the Family.

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(800) 782-8227FocusPlannedGiving@fotf.org

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