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A Charitable Gift with Payments More Predictable Than a Box of Chocolates

Posted October 2018

Forrest Gump, in the 1994 movie of the same name, famously remarks, “My momma always said life was like a box of chocolates. You never know what you’re gonna get.” Fortunately, that is not the case with charitable remainder trusts, which are gifts to us that make payments to you in return. When it comes to matters that affect our financial security, we like to know what we are getting.

There are two main types of charitable remainder trusts: annuity trusts and unitrusts. The annuity trust is like a box of chocolates where every chocolate is exactly the same—no guesswork. The unitrust is like a box of chocolates that are all the same flavor but vary in size: though there is a possibility of some pieces being smaller than you hoped, they could turn out to be considerably larger than you expected.

The charitable remainder annuity trust
You may want to be assured of receiving a certain level of income for recurring expenses. One instrument that provides fixed payments for life is a charitable remainder annuity trust. In addition to fixed payments, you receive an income-tax charitable deduction. If you fund the trust with appreciated securities, you are not taxed on the capital gain when you transfer the securities to the trust and the trust is not taxed on the gain when the securities are sold by the trust.

The charitable remainder unitrust
If you are willing to live with some uncertainty as to the amount of payments you will receive, you can establish a charitable remainder unitrust instead of a charitable remainder annuity trust.  You can count on receiving a fixed percentage of trust assets every year. However, the fair-market value of those assets will vary depending on market performance. The tax benefits of both kinds of trusts will be comparable.

We would be pleased to provide an illustration comparing these two trusts that, while providing different degrees of certainty regarding the income you will receive, do offer absolute certainty that your gift will be used for the charitable purposes you designate. And that could be much more satisfying than unpredictable chocolate!

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This publication was prepared by Pentera Inc., an Indiana business corporation, which is independent of the Met. Pentera is solely responsible for its content, and the Met disclaims all liability. The information is intended to introduce certain concepts, and we caution you not to rely on it for any legal, tax, or other purpose. You should obtain the advice of your own legal and tax advisors before making any gift.

© Pentera, Inc. Planned giving content. All rights reserved.