This type of trust is an irrevocable trust to which you donate assets and, in exchange, receive a stream of income for the remainder of your life or a specific number of years. You may select one or more individuals, a financial institution or a combination of both to be the trustee. The beneficiaries of the income generated by the trust may be you or any other persons you choose. At the end of the payment period to the beneficiary(s), the trustee will pay the trust principal (the assets you donated) to the Saratoga Bridges Endowment Fund.
Charitable Remainder Trusts (CRT) Example
Mr. and Mrs. Cahill, both 70, have mutual fund shares worth $100,000. They purchased these shares many years ago for $20,000. The dividend yield on this fund is 1%. They would like more money to spend during their retirement but are hesitant to sell their shares and reinvest for a higher yield due to the capital gains tax they would pay.
They contribute the shares to a trust and select a 6% payout rate. Their distributions immediately increase from $1,000 to $6,000 per year and will grow over time if the shares in the trust appreciate in value.
Their gift results in a charitable deduction of $35,775 that, in their 30% tax bracket, translates into a net tax savings of $10,773. In addition they avoid a capital gains tax of $16,000 (20% of $80,000). Thus, the total tax savings amounts to $26,773, reducing the net cost of the gift to $73,267. Based on net cost, the $6,000 they receive is equivalent to an 8.2% yield.