By using a charitable remainder trust, a donor can often make a much larger gift than would be possible through an outright contribution. With a charitable remainder trust, the donor can receive an income tax deduction, lower estate taxes, avoid capital gains taxes and still enjoy income from the contributed property. In some cases, the annual income received from the trust can be tax-free -- an added bonus.

The donor establishes a charitable remainder trust with cash, securities, real estate, or other property and specifies to whom income payments will be made. The payments can go to the donor or to one or more other beneficiaries. Payments can be made annually or in more frequent intervals. A survivor beneficiary may also be designated to receive income upon the donor's death. The trust will continue for the lifetime of the beneficiaries or for a period of years, depending on the terms selected by the donor. When the rights of these income beneficiaries terminate, the trust assets are then transferred to the Foundation.

A charitable remainder trust is classified either as an annuity trust or unitrust, depending on how beneficiary payments are made. A fixed dollar amount (at least 5% of the original value of the trust) is paid annually to the income beneficiary of an annuity trust. The payment stays the same through out the term of the trust.

Income beneficiaries of a unitrust receive an agreed-upon percentage of the fair market value of the trust assets each year. The percentage is specified when the trust is set up and must be at least 5 per cent. Because the unitrust's assets must be revalued annually, the payment will vary with the value of the trust. While it is possible for the trust payments to decline in a given year, this provision offers the opportunity for long-term growth and for income payments to keep up with inflation.

Certain trusts may be funded with assets that do not produce income immediately (real estate for example). In this case, the donor will receive the agreed upon percentage or all trust income, whichever is less.

EXAMPLE: Betty Brown is a widow, age 60. Her husband left her a lakeside cabin worth $150,000. She cannot manage the cabin but knows that if she sells it she will have to pay a tax on her capital gain. She doesn't think she knows enough about stocks and bonds to invest the proceeds properly on her own. Mrs. Brown decides to donate the cabin to the Foundation to establish a 5% unitrust, avoiding the capital gains tax. The Foundation can then sell the cabin, invest the proceeds and pay her annually 5% of the fair market value of the trust assets. Mrs. Brown will receive $7,500 the first year ($150,000 x 5%). As the value of the trust increases, so does the payment to Mrs. Brown. So, if the value of the trust increases by 4%, to $156,000, Mrs. Brown will receive $7,800 the second year. The same 4% growth would make the trust worth $162,240 in the third year, yielding income of $8,112 and so on. As an added bonus, Mrs. Brown is entitled to an income tax charitable deduction of approximately $64,000 in the year the trust is established. And, if necessary, she may carry the unused portion of the deduction forward to help reduce her tax bill for up to five additional years. When Mrs. Brown's interest terminates, the trust assets will be used to fund a project at OSU in her name.

Note: The tax deduction and income potential can vary significantly between a unitrust and annuity trust. It is important that each donor's needs be examined carefully and individually before one option or the other is selected.