Charitable Remainder Trusts

With a charitable remainder trust you make a gift to PNB (and possibly other charities) and receive income for your lifetime (or a period of up to 20 years that you specify). You may have an asset you wish to donate to the Pacific Northwest Ballet, or you may have an asset that is underperforming and you would like to improve your cash flow from it. You may be reluctant to sell the asset and reinvest in something more productive because of substantial capital gains taxes. As an alternative, you might consider a charitable remainder trust that can be established benefiting you and, in the long run, providing support for Pacific Northwest Ballet.

You transfer assets into a trust and designate a trustee. The trustee manages the assets, which may involve selling them and reinvesting the proceeds as appropriate, and pays income to you (or other designated beneficiaries). When the trust sells appreciated assets, it pays no tax on the gains. Payments can be a fixed amount (annuity trust) providing you the security of the same payment each time; or payments can be based on a stipulated percentage of trust assets (unitrust), meaning payments will vary but have the possibility of increasing over time. When the trust terminates, the remaining principal is used to benefit Pacific Northwest Ballet. Overall, a CRT has these benefits:

  • Provides you and/or other beneficiaries annual payments during life
  • Provides an immediate income tax deduction for a portion of the value of the assets transferred
  • Converts low or non-income producing assets into cash flow without incurring capital gain taxes at the time of conversion
  • Can provide supplemental income for retirement or for family members or other loved ones
  • Allows you to name one or more charities as the ultimate beneficiaries of the trust
  • May provide estate tax savings

Planned Giving at Work

Mr. & Mrs. T, ages 68 and 65, own undeveloped land worth $250,000, which they originally bought for $50,000. They contribute the land to a charitable remainder unitrust, which will pay them 5% of the trust principal annually. They pay no tax on the capital gain when the trust is established or when it sells the land. They also receive an income tax deduction of $89,020. Payment in the first year would be $12,500 and if the trustee's investments earn a net total return greater than 5 percent, their annual payments will grow. By the time the remainder is transferred at the end of their lives, the trust principal may have grown, possibly providing an even larger endowed scholarship fund for aspiring PNB dancers.

(Example uses a discount rate of 3.4%.)

We would be pleased to prepare an illustration showing how a charitable remainder trust would work in your situation. There is no cost or obligation and all information will be kept confidential. For an illustration or more information, please contact Katie Johnson, Major Gift and Planned Giving Manager, at 206.441.3599 or kjohnson@pnb.org.

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