Charitable Remainder Trust Disclosure Statement
2007 - 2008
The ELCA Foundation receives and administers gifts to the Evangelical Lutheran Church in America in the form of charitable remainder trusts. Gifts of cash, real estate and other appreciated assets are accepted to fund a charitable remainder trust.
The Charitable Remainder Unitrust and the Charitable Remainder Annuity Trust have served many people well as means to make significant gifts to support the ministries of Jesus Christ. The trusts can be advantageous to the donor in several ways: receiving a charitable contribution income tax deduction based on age and the trust payout percentage, bypassing capital gains tax on appreciated property and receiving an income for life or for a term of years.
This brochure is intended to explain some of the practical matters of the charitable remainder trust. It also serves as a Disclosure Statement to comply with the Philanthropy Protection Act of 1995. If you have other questions contact your ELCA Foundation Regional Gift Planner or call the Foundation office in Chicago at 1-800-638-3522 (ext. 2970).
ELCA Charitable Trusts The ELCA Foundation was established in 1988 upon the merger of the Lutheran Church in America, the American Lutheran Church and the Association of Evangelical Lutheran Churches to form the Evangelical Lutheran Church in America. On January 1, 2007 the Evangelical Lutheran Church in America (ELCA) was serving as trustee for 419 charitable trusts. The combined current market value on January 1, 2007 was $85,520,480 and the total gift value was $83,880,383.. Fourteen of the trusts are from predecessor church bodies; 405 have been established since the ELCA began in 1988.
Most of the trust assets are managed by Wachovia Bank, which serves as subordinate co-trustee. Wachovia is paid for the investment management and custodianship of these funds. Wachovia makes the payouts to the income beneficiaries and provides quarterly reports which show individual trust investment performance. A number of trusts are managed by Thrivent Financial Bank as subordinate co-trustee.
Types of Charitable Remainder Unitrusts Type 1 - Guaranteed Percentage Income Unitrust - provides the individual income beneficiaries with an amount equal to a fixed percent of the net fair market value of trust assets (minimum 5%) determined annually. In the event that the trust earnings do not meet the pre-determined payout percent, principal assets will be sold to meet the pre-determined payout percent. (The ELCA Foundation will not accept real estate to fund this type of unitrust).
Type 2 - Net Income Unitrust - provides the individual income beneficiaries an amount equal to a fixed percentage of the net fair market value of assets (minimum 5%) determined annually, or the actual net income earned, whichever is less.
Type 3 - Net Income Plus Make-Up Unitrust- provides the individual income beneficiaries an amount equal to a fixed percent of the net fair market value of assets (minimum 5%) determined annually, or the actual net income earned, whichever is less, with the provision that the payments may exceed the stated percentage, up to, but not exceeding, the amount required to make up any accumulated deficiencies for prior years, that is, years in which the trust earned less than the stated percentage.
"Flip" Unitrusts - This unitrust type combines the features of a Net Income Unitrust with those of a Guaranteed Percentage Unitrust. Increasingly the ELCA Foundation is using this type of unitrust where gifts of real estate or stock in closely-held corporations are concerned. The donor irrevocably assigns gift(s) to the unitrust. While the trust is seeking to liquidate those gifts, the trust remains a Type 3 unitrust. On January 1 of the year following a specified triggering date, such as the sale of more than 50% of the trust's non-liquid assets, the entire trust becomes a Type 1 unitrust with guaranteed payments as to that year's current market value.
All types of Unitrusts may receive additional gifts at any time.
Charitable Remainder Annuity Trusts
Provides the individual income beneficiaries an amount equal to a fixed percent of the initial donor gift value of the assets assigned to the trust (minimum 5%). No additional gifts may be made to this type of trust. The trust will continue to make income payments as long as the trust has assets.
Payout Schedules Payouts from the trusts are made monthly, quarterly, semi-annually or annually to best meet the needs of the donor.
Payout Percentages
By law, a charitable trust must have a 5% minimum payout percent. A larger payout percent may be negotiated between the Foundation and the donor, based on the donor needs and the status of the securities market. If a donor chooses a larger payout percentage than suggested, the donor is accountable for the decision. The higher the percentage, the smaller the charitable deduction.
Required Legal Documents The legal documents required for charitable trusts can be prepared by the ELCA Foundation at no expense to the donor. Donors are encouraged to have their personal attorney or accountant review the document. The review is the donor's personal expense.
Charitable Beneficiaries With charitable trusts in which the ELCA serves as trustee 70% of the charitable remainder value must be designated to ELCA ministries (churchwide, synodical, congregational or institutional). Up to 30% of the charitable remainder value may be donor designated to non-ELCA not-for-profit charities which are IRS approved (501(c)(3)).
Giving Cash Cash gifts in the form of checks are recorded as gifts on the date of the postmark on the envelope received by the ELCA Foundation, or the date the check is personally handed to an ELCA Foundation representative.
Giving Publicly Traded Securities Gift value of stocks is determined by averaging the high and low for that stock on the gift date. The gift date for stock gifts is the date of the postmark on the envelope received by the ELCA Foundation, or the date the stock certificates and stock powers are personally handed to an ELCA Foundation representative or the date that securities are transferred into an ELCA account. The donor also needs to supply the ELCA with the cost basis of the stock and terms of ownership.
If securities are held by the donor in "street name" with a broker, they can be wire transferred from the donor's account to the ELCA account. Ask The Foundation for wire transfer procedures. The gift date of the stock for gift value purposes is the date it is transferred into The Foundation's account.
Giving Real Estate or Closely Held Stock The initial fair market value of real estate or closely held stock placed in a charitable remainder trust is determined by a qualified appraisal at the time of the gift. An appraisal must be completed no more than 60 days prior to the gift date. The date of the gift is the date the deed is recorded or the date the stock is transferred.
For real estate gifts, the amount eventually invested in the charitable remainder trust will be the sale price, less sales expenses, advances and commissions.
When Appraisals Are Needed The appraisal of real estate property or closely held stock is the responsibility and expense of the donor. Appraisal guidelines will be made available by the ELCA Foundation. An IRS Form 8283 provided by the ELCA Foundation must be completed by the donor and the qualified appraiser. The appraiser must include a description of the property and the appraised market value on the Form 8283. The ELCA Foundation, after completion of its section on Form 8283, will return the original form to the donor to be included with the donor's income tax return. The ELCA Foundation will file Form 8282 with the IRS upon liquidation of real estate assets to provide the sale price.
The appraised value of real estate property or closely held stock becomes the gift value. The sale value, impacted by the real estate market in a given geographical area, may be less or more than the appraised value. If the sale value is significantly lower than the appraisal, the charitable tax deduction may need to be recalculated.
Depreciation of real estate lowers the cost basis. If the accelerated depreciation method rather than the straight-line option has been utilized, depreciation recapture may apply. For additional information consult a tax advisor.
Two-Year Rule
Unsold gift property which is in a unitrust for more than two years may be discounted in value to more closely relate to current sale offers and a new appraisal may be necessary. Gift property sold at a substantially discounted rate within two years of the gift date may require the donor to file an amended tax return for the year the property was gifted.
Environmental Questionnaire
An environmental questionnaire will be required for all real estate gifts. If the questionnaire reveals serious concerns, the gift property may need to be rejected as a potential charitable gift. A Phase I survey or full inspection may be required at the donor's expense.
Net Fair Market Value On the first business day of each year the ELCA Foundation will revalue the assets of each unitrust to determine its net fair market value. Additions to a unitrust require a revaluation of the trust assets at the time of each new gift.
Tax Deductions and Annual Tax Reports
Figuring the tax deduction for a charitable remainder trust is quite complex, involving the (1) the estimated length of life expectancy of the trust, (2) the payout percentage and, (3) the type of trust selected. Generally, shorter expectancy length, lower payout percentage and earned income versus guaranteed income, will provide a larger tax deduction.
A gift and tax letter will be prepared by the ELCA Foundation at the time of the gift. The income beneficiary will receive the IRS form K-1 annually which is needed for the income beneficiaries' income tax return. Generally the IRS form K-1 will arrive by mid-February to mid-March but is legally required to arrive no later than April 15.
Donors cannot deduct an unlimited amount of charitable contributions for income tax purposes in any one year. There are limitations based on the donor's adjusted gross income. The donor, however, must use as much of the tax deduction as possible in the current year of taxation. The tax deduction may NOT be averaged to spread its benefit over several years.
Total charitable contributions are deductible up to 50% of a donor's adjusted gross income. Amounts exceeding 50% may be carried over for up to five additional years. These carryovers are subject to the same limitations listed above.
Gifts of appreciated assets are deductible up to 30% of a donor's adjusted gross income. Amounts exceeding 30% may be carried over for up to five additional years. These carryovers are subject to the same limitations listed above.
ELCA Foundation Management Fees
The ELCA annual management fee for charitable trusts administered by and invested with Wachovia Bank is one and two-tenths percent per year. The ELCA fee for charitable trusts administered by and invested with Thrivent Bank are one and one-tenth percent per year. The ELCA fee for charitable trusts managed other than through Wachovia Bank or Thrivent Bank is seven-tenths percent per year, plus whatever fees are charged by the investment vehicle. The fee is determined on the basis of the trusts' net fair market value determined annually. The fee is generally charged against principal monthly. The annual management fee may increase in the future if there is an inflation of costs in trust management.
The fee for administration and management is all-inclusive, covering the cost of the trust document, accounting and recording payments to the beneficiaries, monthly reports, IRS reports and the annual IRS form K-1.
Commissions
No commissions are paid to ELCA Foundation representatives and compensation is not based on the number or value of gifts.
Investment of Charitable Trusts Investments of charitable trusts are made individually according to the circumstances of each trust. The majority of trusts are invested with Evergreen Select Institutional Class Mutual Funds and other independent mutual funds now in the custody of Wachovia Bank in Winston-Salem, North Carolina. Funds transferred to Wachovia are invested immediately. Money market funds are also used as temporary investments.
Investment choices provide options to generate income and growth. Investment options and revisions are determined by donor needs upon discussion with the ELCA Foundation.
The yield of an investment is the earned income from interest and dividends, expressed in percentage terms and calculated by dividing the annual yield by the price of the assets' value and annualizing the result. The total return is the return on the investment which takes into account the change in price plus dividends and interest received. The total return reflects changes in net asset value and reinvestment of all distributions in additional shares of the investment.
Individual Investment Preferences
As trustee the ELCA must, by law, retain the responsibility for investment management decisions. Alternate investment management may be suggested by the donor in writing to the trustee (any binding instructions or conditions by a donor may disqualify the trust and its tax advantages). If the alternate investment management suggested is followed any additional fees and charges will be charged to the trust.
Date _______________________
On this date I/we the undersigned have decided to establish a charitable remainder trust and have discussed the contents of the ELCA Foundation brochure, "ELCA Charitable Remainder Trusts" with a representative of The Foundation.
Donor(s) Signatures
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Donor(s) Names
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ELCA Foundation Representative
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Disclaimer Charitable remainder trusts and their invested assets are exempt from the registration requirements of the federal securities laws, pursuant to the Philanthropy Protection Act of 1995 which exempts collective investment funds and similar funds maintained by charitable organizations.
Prospective donors to an irrevocable charitable remainder trust are advised to consult with their attorney or tax advisor. The information above is not intended as legal or tax advice.