Contents

FUNDAMENTALS OF PLANNED GIVINGWhen the annuity interest or unitrust interest is payable over a term ofyears, any person (including an individual, corporation, trust, or partnership)can be a beneficiary. When the term is for someone’s life, however, only an individual(or a charity) can be a beneficiary. If these rules are not followed, the charitablededuction will not be allowed, or will be allowed only if state law causesimmediate acceleration of the remainder interest.All categories of charitable organizations—both public charities and privatefoundations 12 —are eligible to be remainder beneficiaries of as many charitableremainder trusts as they can muster. The allowability of the charitable deductionwill vary, however, as respects the type of charitable organization that is thedonee, because of the percentage limitations. 13Usually, a bank or similar financial institution serves as the trustee of a charitableremainder trust. These institutions should have the capacity to administerthe trust, make appropriate investments, and timely adhere to all income distributionand reporting requirements. It is common, however, for the charitableorganization that is the remainder beneficiary to act as trustee. If the donor or arelated person is named the trustee, the grantor trust rules may apply, with thegain from the sale by the trust of appreciated property taxed to the donor. 14Conventionally, once the income interest expires, the assets in a charitableremainder trust are distributed to the charitable organization that is the remainderbeneficiary. The assets (or a portion of them) may, however, be retained inthe trust. If a retention occurs, the trust will be classified as a private foundation,unless it can sidestep those rules.(b) Charitable Remainder Annuity TrustsOne basic type of charitable remainder trust is, as noted, the charitable remainderannuity trust.Specific Rules. When an annuity trust is utilized, the donor (or other incomebeneficiary or beneficiaries) annually receives income in the form of a fixedamount, called a sum certain. This stated dollar amount is the same either as toeach recipient or as to the total amount payable for each year of the paymentperiod. The amount may be expressed as a fraction or a percentage of the initialnet fair market value of the property irrevocably passing in trust.A federal income tax charitable deduction is available for the creation of aremainder interest for a charity, by means of a charitable remainder annuitytrust, when nine basic criteria are satisfied:1. The trust must be structured to pay an annuity to or for the use of one ormore noncharitable beneficiaries.2. Each noncharitable beneficiary must be alive at the time the trust isestablished.3. The annuity must be equal to at least 5 percent of the initial net fair marketvalue of the gift property.12 See § 3.4.13 See Chapter 7.14 IRC §§ 671–677. 150