Different Types of Planned Gifts

Planned gifts (also known as Legacy gifts) are charitable gifts made today for a future benefit to the charity. Examples of planned gifts are charitable gift annuities, charitable remainder trusts, and bequests in a will. Some of the planned gifts offer the donor a charitable deduction and an income stream.

Charitable Gift Annuities (CGA) can be a good planned gift option for donors who want to give to charity but have concerns about outliving their retirement funds. The donor makes a gift to a charity, receives a portion of the gift back as a charitable deduction, and receives payments for his or her lifetime that are partially tax-free. Only one or two annuitants can receive payments from a single gift annuity. Additional funds cannot be added to an existing annuity. 

If the donor gifts an appreciated asset, the capital gains are spread out over the life expectancy of the annuitant. Gift annuities’ funds are invested in a separate account from the other assets of the charity. However, gift annuity payments are backed by all the unrestricted assets of the charity. When the annuity matures, the remainder of the gift stays with the charity to be used for ministry.

Cornerstone Management assists our charity clients with the investment, administration, tax reporting, and state registration of their annuity programs.  Please see What is a Charitable Gift Annuity? for more information on CGAs in general.

QCD Funded Gift Annuity The Secure Act 2.0 allows a donor to use a portion of his or her IRA to fund a charitable gift annuity. This is only available for one year in the donor’s lifetime and for a limited amount. For 2025, the limit is $54,000. Also, the donor must be at least    70 ½ years old.

For more information on this funding opportunity, please see our article on funding a CGA from an IRA.

Testamentary Charitable Gift Annuities  Non-spouse beneficiaries of an inherited IRA must withdraw the full balance of the IRA within 10 years of the passing of the IRA owner. The testamentary CGA can be a viable option for someone to create lifetime income for a non-spouse such as a child or grandchild while also making a gift to charity. For more information on this option, please refer to Testamentary Charitable Gift Annuities.

Charitable Remainder Annuity Trusts (CRAT) are irrevocable trusts with a fixed payment amount for the term of the trust. The donor transfers assets to the trust, receives an immediate charitable deduction, and receives a fixed annuity payment that is at least 5% of the initial trust value. If appreciated assets are gifted to the trust, the trust itself pays no tax when the trust sells those assets, but the capital gains are taxed to the income beneficiary over time as payments are made. The term of the trust can be for a number of years up to 20, or for one or two lives. Once the term of trust ends, any remaining assets in the trust are given to the named charity or charities in the trust document. This trust does not allow additions to the initial gift.

Cornerstone Management helps our clients with the investment, administration and tax reporting for their CRATs.

Charitable Remainder Unitrusts (CRUT) are split-interest gifts that are irrevocable, provide income for the donor or other beneficiaries, and allow the remaining assets of the trust to be given to a charity. 

The types of CRUTs are –

• Standard CRUT pays a fixed percentage of the trust’s market value. This is valued annually causing the payments to fluctuate from year to year. 
• Net Income with Makeup Unitrust (NIMCRUT) will pay the lesser of the actual income or the stated percentage. However, higher levels of income in future years can be distributed to help makeup past years’ lower income payments. 
• Flip CRUT is a trust that begins as a NIMCRUT or a Net Income CRUT and when a triggering event occurs, the trust flips to a standard CRUT. An example of a triggering event is the sale of an appreciated property or birthdate of the donor.

CRUTs require a separate EIN for the trust from the IRS. The trust document should be in place prior to any funding of the trust. The noncharitable beneficiaries receive payments for the life of one or more noncharitable beneficiaries and/or a guaranteed term of no longer than 20 years.

Cornerstone Management assists our charity clients with investment, administration, consulting, and tax reporting for their trusts. To learn more, please see Funding a Charitable Remainder Trust with Real Estate.

Charitable Lead Trusts (CLAT and CLUT) are the reverse of CRATs and CRUTs. The charity receives an income stream for a specific term of years or the donor’s lifetime. When the term of years or lifetime ends, the remaining assets return to the donor or the donor’s beneficiaries.

Pooled Income Fund (PIF) is a pooled fund created and maintained by a charity that donors can contribute to for an immediate tax deduction. The donor holds a share of the fund and receives income payments on that portion of the fund. When the donor passes away, the charity receives the donor’s portion of the fund.

Cornerstone Management manages the Pooled Income Funds investments, administration, and tax reporting for our clients.

Retained Life Estate allows a donor to transfer his deed or title of his property to the charity while he retains the right to continue to live in or use the property. Retained life estate belongs to the charity once the term is up or the donor can no longer live or use the property. The donor is responsible for maintenance of the property while living and using the property.

Bequests from a Will allow a donor committed to your charity’s cause to remember your charity after he or she is gone. Reminding your donor that adding your charity to his will is an easy way to help the charity in future years. According to Giving USA 2024, bequests represent around 8-10% of total giving over the last 40 years. 

As you can see, the options for planned giving range from as simple as a bequest in a will to a complicated flip CRUT with an appreciated property. The goal is to give your donor options to help avoid taxable situations and to benefit the charitable organizations as well. Cornerstone Management comes alongside our charity clients and their donors to assist with finding the best planned gift option for the situation.