The charitable Remainder Annuity Trust is an irrevocable gift providing the donor an income from the assets placed in trust for life. The gift is irrevocable; meaning the Foundation is guaranteed the future use of the principal. At the time of the donor’s death any assets remaining in the trust will pass to the Missouri Southern Foundation. Donors must be certain they have no future need of these assets prior to creating an irrevocable trust. The trustee is charged with paying the donor a fixed annual income equal to, as a minimum, 5 percent of the initial value of the assets placed in the trust. If the return on the investment in a given year is insufficient to cover the fixed annual payout, assets are drawn from the principal to cover the annual payment. Conversely if the return for a year is greater than the fixed annual payment the excess is reinvested in the trust.
Mrs. Smith wishes to place $80,000 in a remainder annuity trust returning 6 percent ($4,800) annually. She will fund the trust with real estate originally costing $42,000. By creating a trust through the Foundation she is able to avoid tax on the appreciated value of the property and receive an income tax deduction through charitable giving. In addition to the tax savings, she will receive a fixed annual payment for life and know in the future she will be helping students attending Missouri Southern State University.
This is only one example of how a charitable remainder annuity trust can be used to meet the needs of a donor. In all cases, donors should consult their attorney, accountant, or estate planner when considering gift giving.