How Charitable Remainder Trusts Can Make Giving Easier for Big Donors

More than half of baby boomers are now in their 60s — an age when many individuals consider leaving a legacy through a charitable gift.

Yet Joe Bull, executive director of gift planning at Carnegie Mellon University, says boomers’ financial realities often snuff out that impulse to give. Many boomers are simultaneously paying college tuitions for children and long-term care bills for parents, the classic squeeze of the sandwich generation.

“People say, ‘I’d love to give, but…’” Mr. Bull says.

To help donors, Mr. Bull frequently turns to charitable remainder trusts. These are giving vehicles that spin off income for another purpose — say, a child’s tuition — over a limited time before the principal goes to a charity.

Unlike a bequest, a remainder trust is irrevocable; a donor cannot change its terms. But donor benefits include an immediate tax deduction, and the arrangement offers a way for donors to give even when they face significant short-term financial obligations.

“It’s a way to get to a ‘yes’ from a ‘no,’ ” Mr. Bull says.

Here are three examples of how Mr. Bull uses the remainder trust.

To pay college expenses: A donor, Susan, puts $50,000 of appreciated property or assets into a charitable remainder trust for five years — roughly the time she expects her child, Douglas, to attend college. Through this gift, Susan avoids capital gains taxes on the donated assets and receives an income-tax deduction of about $31,000. Douglas, meanwhile, uses roughly $4,000 in annual income from the trust to help pay college expenses. After Douglas finishes school, the principal of the gift goes to the charity. It could be more or less than the original $50,000, depending on the returns of the trust’s investments over that time.

To pay support for parents: A donor, Harry, is paying $1,000 a month for the retirement home care of his mother. Instead, he puts $150,000 in cash into a charitable remainder annuity, receiving an $84,207 income-tax deduction. The trust then pays out $975 a month in income for the remainder of his mother’s life. Upon the mother’s death, the charity would receive a gift of at least half the original $150,000, according to estimates by the American Council on Gift Annuities, depending on life expectancy. “It’s not unreasonable to assume that 50 to 90 percent of the principal will go to the charity,” Mr. Bull says.

To pay alimony: John recently divorced and believes his alimony payments limit his charitable giving. But he can establish a charitable remainder annuity trust from which income will be drawn to pay that alimony. Most alimony is paid out only over a limited time; when those obligations are fulfilled, the trust closes and the remainder of the principal goes to the charity.

One bonus of the trust for some couples: It guarantees the regular alimony payment, which can be an attractive feature if the spouse paying alimony works as an entrepreneur or otherwise has a volatile income.