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Charitable Trusts: gifts that provide income
For more information or to make a donation to the Buffalo Hospital Foundation
A donor may choose to make an irrevocable gift to Buffalo Hospital Foundation while continuing to receive or creating an income from the gift. This can provide the donor with a supplemental retirement fund, an enhanced source of income or simply a means to make a more significant gift while retaining current benefit from the asset behind the gift. Funding the gift with appreciated assets, the donor can make a substantial gift while retaining current benefit from the asset behind the gift.
Funding the gift with appreciated assets, the donor can make a substantial gift to us, avoid capital gains taxes on the sale of the asset and very likely increase the income produced by the asset. At the same time, the donor receives a charitable income tax deduction based on the donor’s age, the percentage return and the current market value of the asset. There are several different instruments which are used to create these income-producing gifts. Each has its appropriate and special applications.
Life-income-gift tax benefits are generous and are based on the projected value of the property which will ultimately be transferred to the Foundation. Capital gains taxes on appreciated property used to make the life-income gift are either completely avoided or deferred.
Types of charitable trusts
Charitable Remainder Trusts
The trust may be funded with cash or other property. Appreciated property, including securities and real estate which you have owned for over a year, is an excellent source of funding. Capital gains taxes are not paid by the donor at the time the property is transferred to the trust or when the trust later sells the property to diversify the assets. With the right planning, a life insurance policy can replenish the funds passed to us so heirs receive the equivalent amount outside the estate. In this way, Buffalo Hospital Foundation receives a substantial gift, and heirs can receive the same amount as us free of estate taxes. The potential monetary benefits to you are a higher income and substantial tax savings.
Charitable Remainder Annuity Trust (Fixed Income)
Charitable Remainder Unitrust (Variable Income)
Net Income Unitrust
A trust of this type is ordinarily used when the charitable remainder trust is to be funded with unimproved real estate or another type of asset that produces relatively little or no income.
Another use for this trust is in retirement planning. Trust assets are invested voluntarily by the trustee in low-yield, high-growth assets during working years, then at retirement the gains are taken within the trust and the principal amount is reinvested to high-yield assets to fund retirement needs.
Charitable Lead Trusts – Providing an Inheritance and a Gift to Us
A donor may choose to make an irrevocable gift through with their assets to Buffalo Hospital through the Foundation, while providing an inheritance to children. A charitable lead trust is a gift of income to us, and is the mirror image of a charitable remainder trust. The initial or “lead” interest is for the benefit of Buffalo Hospital.
You transfer the assets to a lead trust, which distributes income to the Foundation for a term of years. At the end of the term, the trust distributes the assets, usually to children or grandchildren. Income received by the Foundation from the trust is used for the purposes you specify. The lead trust is generally a lifetime gift; however, you can establish a testamentary lead trust (at death) that would provide similar benefits to your estate, as you would enjoy during your lifetime.
This trust is a specialized estate planning tool. By establishing a charitable lead trust, you are in effect, “lending” the assets to the Foundation for the term of the trust. It is especially valuable if you have substantial estate and gift tax liabilities because it allows you to achieve several goals through one gift:
Of all the charitable gift options available to donors, this trust is among the most complex and can be a very powerful tool in gift and estate tax planning. There are many issues to consider – both legal and personal – when considering the establishment of a charitable lead trust. In the end, you may find that such a trust represents one of the best ways to help Buffalo Hospital while planning a deferred transfer of assets to children.