Charitable Remainder Annuity Trusts

A charitable remainder annuity trust allows you to provide income to yourself or others while making a generous gift to Gettysburg College. The income may continue for the lifetimes of the beneficiaries you name or a fixed term of 1 to 20 years. As an annuity trust donor, you irrevocably transfer assets, usually cash or securities, to a trustee of your choice (for example, Gettysburg College or a bank trust department). During the trust's term, the trustee invests the trust's assets. Each year, the trustee distributes a fixed dollar amount to the income beneficiaries. The payments must be between 5% and 50% of the trust's initial value. Most Gettysburg College charitable remainder annuity trusts pay between 5% and 7%. Payments continue until the trust term ends or until the highly unlikely event that the trust distributes all its assets. Payments may be made annually, semiannually, or quarterly. When the annuity trust term ends, the trust's principal passes to Gettysburg College.

Planning Tip:
Donors should understand that capital gain tax is not bypassed in setting up a charitable remainder trust. Distributions from the trust are taxed as follows:

1. Ordinary income
2. Capital gain income
3. Tax-free income
4. Return of principal

For example, all ordinary income earned by the trust in the previous year must be distributed to the beneficiary first. If there is not sufficient ordinary income to fulfill the payment obligation, capital gain income earned by the trust is distributed and taxed as such. After all capital gain income has been distributed, tax-free income is used. Finally, if more is needed to make the trust payment, a return of the initial principal is permitted.