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Charitable Remainder Trusts

A Charitable Remainder Trust is a special type of income-producing gift arrangement. Charitable remainder trusts can be funded with cash, securities and, in some cases, illiquid assets such as real estate. If the trust is funded with appreciated assets, the donor may be able to avoid paying income tax on the amount of capital gain that is recognized.

Typically, these trusts pay income to one or more beneficiaries for life or for a term of years. At the death of the surviving beneficiary, the remaining principal in the trust comes to The John and Mable Ringling Museum of Art/FSU Foundation. The rate of income paid out to the beneficiary must be at least five percent and is usually not more than seven percent. A number of factors, including the number of income beneficiaries and their ages, will dictate the appropriate payout rate.

The two most common types of charitable remainder trusts are the “annuity trust” and the “unitrust.” With an annuity trust, the income paid out is a fixed amount that is determined at the time the trust is established. So, if the original amount placed in the trust account is $100,000 and the payout is five percent, the beneficiary would receive $5,000 annually, regardless of the trust’s changing value over time.

A unitrust, on the other hand, pays out a percentage based on the value of the principal, which is re-valued annually. In many cases, the unitrust variation provides a hedge against inflation. The valuation can rise or fall, but over time a well-managed unitrust may offer better protection of your purchasing power than fixed dollar payments. A further advantage is that if you want to enlarge the trust later, you can make additional contributions without the cost of creating and administering more than one trust. This option is not available for annuity trusts.

A minimum of $100,000 is required to establish a charitable remainder trust to be managed by The Florida State University Foundation in support of The John and Mable Ringling Museum of Art. The Foundation works in partnership with the Charitable Asset Management team at State Street Global Advisors to administer these trusts.

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