Charitable Remainder Trust

Now there's a way to achieve your financial goals while helping Jewish National Fund (Keren Kayemeth LeIsrael), Inc. (JNF) meet the goals of a nation -- the land of Israel -- on behalf of Jewish people everywhere.
Arranging a charitable remainder trust is a way to provide income for yourself, a spouse, or others, while reaping benefits from your generous donation. JNF, in turn, receives much-needed support to continue major projects in ecology and afforestation; water conservation; building roads, parks and playgrounds; education; research and development; and tourism and recreation throughout the land of Israel.

What is a Charitable Remainder Trust?

A Charitable Remainder Trust (CRT) is a gift arrangement defined by federal tax law that enables donors to provide income for themselves, a spouse, or others while making a generous gift to Jewish National Fund. CRTs are separately managed trusts that can be designed to meet specific financial needs and investment objectives.

A CRT offers you a number of significant benefits:

• Income for you or your beneficiaries
• A charitable income tax deduction
• Reduced estate taxes
• Avoidance of lump sum capital gains taxes when appreciated assets are transferred to the CRT
  

How does a Charitable Remainder Trust work?

To create a CRT you irrevocably transfer assets, such as cash, securities, or real estate, to a trustee of your choice. In many cases, JNF can act as trustee.

The trustee will then invest the assets and manage the CRT as a separate account. Depending on your goals, the CRT will pay your beneficiaries a fixed or variable income either throughout their lifetime, for a fixed term of 20 years or less, or a combination of the two.

You form an important partnership with JNF

Your CRT is actually a partnership with JNF, whereas you receive regular income and JNF receives the trust principal - or the remainder interest - when the trust terminates. This special relationship enables you to achieve your financial goals while empowering JNF to continue its conservatorship of the land of Israel.

Enjoy a multitude of tax benefits

Upon establishing the CRT, you may claim an income tax deduction for a portion of the value of the gift. The size of the deduction is based on the projected value of JNF's remainder interest. This is calculated using an IRS formula, which takes the following factors into consideration:

• The age or ages of the income beneficiaries, or number of years of the fixed term
• The annual payout rate
• The monthly federal discount rate
• The type of CRT selected

Depending on how the trust is invested, income payments to the beneficiary will be treated as either, or a combination of, ordinary income, capital gain income, tax-free income, or a return of your own principal -- also tax-free. When the term of the trust expires, either by the passing of the beneficiary or the term selected ends, the remaining trust principal is distributed to Jewish National Fund.

There are two forms of CRTs:

Charitable Remainder Unitrusts

The unitrust pays the income beneficiary a return based on the annual market value of the trust assets, as revalued each year (normally January 1). In other words, if the trust principal grows over time, the income paid will grow right along with it. This income is determined by multiplying an agreed percentage rate (not less than 5%) by the value of the trust assets. That figure will be the income earned for the entire year.

Multiply $100,000 in trust assets as of January 1 by 5% for a total of $5,000 in income for that year. If the trust assetsgrow, then the income will grow as well. For example, if assets grow to $110,000 by the following January 1, using the same formula, total income would grow to $5,500.

A popular strategy to avoid capital gains taxes, in addition to receiving an income tax deduction for the calculated remainder value, is to contribute highly-appreciated, low-yielding investments to unitrusts. By doing so, the unitrust can sell the asset tax-free and reinvest the proceeds for greater income.

Additional contributions to a unitrust are permitted without having to create a new trust each time an additional gift is made.

Charitable Remainder Annuity Trusts

The primary difference between a Charitable Remainder Annuity Trust and a Charitable Remainder Unitrust is that the annuity trust's payout is fixed and never changes. As is with the unitrust, the payout is based on a percentage of the fair market value of the assets transferred to the trust. The trust assets, however, are not revalued on an annual basis. Once the values are set, the payout remains constant.

Annuity trusts are ideal if you prefer income security rather than the long term, but variable, growth potential of the unitrust.

Unlike the unitrust, additional contributions cannot be made to annuity trusts.

To speak to a JNF Planned Giving Specialist, please call (800) 562-7526.