Irrevocable Charitable Remainder Trust
To set up a charitable remainder trust or other planned giving instrument to suit your financial needs and benefit your community, a donor may transfer property (cash, securities, real estate) to the Thunder Bay & District Humane Society while alive through the use of an irrevocable trust. The donor receives an income tax donation receipt and an immediate tax credit based upon the value of the equitable interest in the Trust, being the value that an arm's length person would pay to acquire the equitable interest.
Using an oversimplified example with assumptions to illustrate the basic concept:
If you set up a Trust by transferring $100,000, the value of the equitable interest in the Trust would be calculated by discounting the $100,000 at an appropriate rate over your remaining life expectancy. In this example, using a 4% discount rate and a 30-year life expectancy, the present value of the $100,000 would be $30,831. A charitable receipt for $30,831 would be issued.
The donation is held in trust during the donor's lifetime and the donor (or any person named by the donor) receives payment of the income generated by the donated property. The property is transferred to the Humane Society upon the donor's death.
There are a number of advantages to the donor when establishing an irrevocable Charitable Remainder Trust:
- provision of lifetime income to the donor
- provision of an immediate tax receipt
- provides beneficial treatment of capital gains
- donor is free from investment decisions since the trustee can arrange for professional management of the trust assets
- avoids Estate Administration Tax and other estate costs because the assets in a trust pass outside of the estate process
- not contestable
- provides privacy for those donors who wish their philanthropy to remain a private matter
Donors should be aware that there are a number of issues to consider when establishing an irrevocable Charitable Remainder Trust. Since the gift is irrevocable, title of the property has been transferred and in the case of a financial reversal, the donor cannot regain access to the principal.
Most financial institutions will not establish a trust for amounts under $100,000, so the capital outlay is quite large. There are set up fees and ongoing costs charged by the trustee (if a financial institution) which the donor must incur. It is very important that donors considering this type of gift seek professional counsel.
For more information or assistance with establishing a trust to the Thunder Bay & District Humane Society, please consult your professional advisor.