No. of Recommendations: 6
Lokicious has just written about gift annuities. In the case of an annuity, the donor gives assets (such as appreciated stock or property) to a charity or insurer. The latter provides an income stream, the annuity.

If you think that you can do better, with your income investments, than an insurer, you might want to think of setting up a charitable remainder trust.

I recently wrote this letter, to my 58-year-old cousin, who is childless.

Hi, Cousin.

We discussed how you want to increase your income.

One way, for you, is to use your beach house, to fund a Charitable Remainder Trust.

This has advantages (since you don't have children, for whom you need to preserve an inheritance). You would avoid paying capital gains tax, when you sold. You would get a constant income stream. Because of your donation, you get an income tax deduction against your income, which you can carry forward, for 5 years.

Here's how it would work.
1. Decide upon a charity, that you would like to be the ultimate beneficiary (after you die).

2. Meet with the charity's attorney, and enter an annuity agreement, with the charity. You will negotiate an amount that the charity will pay you, as an annuity. This agreement will include a clause that says that the amount is fixed, and that principal may be invaded, if necessary, to pay the agreed-upon annuity amount. This is a CRAT (Charitable Remainder Annuity Trust).

3. Choose a bank or corporate Trust department, for your CRAT. Keeping the charity out of the financial loop protects your investments. The charity will be the listed Trustee of the account, but you will control the investment strategy. The money will be held, and the income sent to you, by the corporate Trust department. If you decide that you don't like the first charity, you can change to a different charity, later.

4. Sell the property. The escrow check will be sent to your CRAT.

5. The income will come to you, for your lifetime.

6. When you die, the CRAT will revert to the charity.

Here is a link to some sophisticated articles, including tax-efficient investing, for a CRAT.

The only disadvantage, to this plan, is that you give up control of the value of the beach house. It gets converted into an annuity. Just like a lump-sum annuity, you can't spend the whole amount, if you need it. However, you get the income stream, for your lifetime.

I encourage you to talk with an estate attorney, about this.

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