Charitable remainder trusts
Charitable remainder trusts allow you to make a gift to the Museum and at the same time retain an income stream from the assets you give. These separately managed trusts can be tailored to meet your financial goals with respect to the payout rate, type of income stream (variable or fixed), and payment schedule. To establish a charitable remainder trust, you make an irrevocable contribution of cash, securities, or other property, which is placed in trust. The trust pays an income stream to one or more named beneficiaries (which can include you) for life and/or for a set term of years (not to exceed 20), and the Museum receives the right to the property remaining at the end of the trust term. The two most common types of charitable remainder trust are: (1) the annuity trust, which pays a fixed dollar amount each year based on a percentage (at least 5%) of the initial fair market value of the trust assets and (2) the unitrust, which pays a variable income stream based on a percentage (again, at least 5%) of the fair market value of trust assets as revalued each year. A payment deferral feature is available for charitable remainder unitrusts. Because charitable remainder trusts (like IRA or 401(k) plan assets) are ordinarily exempt from tax on their ordinary income and capital gains, this payment deferral feature can make them a useful retirement planning tool if you are in a position to defer the starting date for your receipt of an income stream from the trust. Charitable remainder trusts are typically funded with appreciated publicly traded securities worth at least $100,000. Establishing such a trust generally entitles you to claim an immediate income-tax charitable deduction, and the trustee may liquidate the property you contribute to the trust without immediate taxation of any gain realized upon liquidation. This feature enables the undistributed gain in the trust to be invested with an opportunity to grow on a tax-deferred basis in a way similar to the tax-deferred build-up of value in an IRA that experiences positive returns. If you elect the payment deferral feature, this benefit can be amplified.
Charitable lead trusts
A charitable lead trust is the reverse of a charitable remainder trust; the gift to the Museum is the income stream from the trust, not the remainder. Charitable lead trusts enable you to provide an income stream to the Museum immediately for a set term of years or for a term measured by one or more lifetimes (this is known as the “lead term”) after which the trust assets pass to your heirs or trusts for their benefit. The use of a charitable lead trust can significantly reduce your gift or estate tax for the assets you place in the trust, and if the assets perform better than IRS assumptions about their net growth over the lead term, the trust may enable a donor to leverage the value of what passes to the donor’s heirs at the end of the lead term.
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