Charitable Trusts and Annuities

Also referred to as "split-interest agreements," these are trusts or other arrangements in which Emory shares benefits with other beneficiaries. In other words, the donor makes a gift, either directly to the university or through a trust, where Emory is not the sole beneficiary.

Split-interest agreements include:

  • Charitable remainder trusts
  • Charitable lead trusts
  • Perpetual trusts
  • Charitable gift annuities
  • Pooled income funds

The Office of the Controller is responsible for ensuring compliance with all reporting requirements for these agreements.

Charitable Remainder Annuity Trusts and Unitrusts

A charitable remainder trust is an arrangement where a donor establishes and funds a trust either with the university or a third party trustee, such as a bank. The income from the trust is paid to a designated beneficiary (or beneficiaries) during the term of the trust.

If the payments to the beneficiary are a fixed dollar amount, the trust is called a charitable remainder annuity trust (CRATs). If the payments are based on a percentage of the fair market value of the trust assets (determined annually), the trust is called a charitable remainder unitrust (CRUTs).  

At the termination of the trust (usually at the death of the beneficiary), the remaining (hence the term "remainder") assets are transferred to the university.  

During the life of the trust all financial activity, including gains and losses from the trust principal assets (also known as corpus), must be reported annually to the Internal Revenue Service on Form 5227, Split Interest Trust Information Return, and Form 1041-A, Trust Accumulation of Charitable Amounts. Because the trust is a charitable entity, no tax is imposed at the trust level. Taxable income flows through to the beneficiary.

Charitable Lead Annuity Trusts and Unitrusts

With a charitable lead trust, the donor funds a trust for payments to be made to the university over a fixed period of time.  

Similar to remainder trusts, these may be either annuity trusts or unitrusts. If the payments to Emory are fixed in terms of dollars, it is a charitable lead annuity trust. If the payments are a fixed percentage of the trust's fair market value (determined annually), the trust is called a charitable lead unitrust. The funds may be held by the university or by a third party as trustee.  

At the termination of the trust, the balance of the trust assets is returned to the donor or paid to other beneficiaries designated by the donor.

Unlike remainder trusts, the assets of a lead trust are deemed to be assets of the donor for tax purposes. All income and capital gains and losses are reported by the donor and taxed as if no lead trust exists. The trust must annually file Form 1041, U.S. Income Tax Returns for Estates and Trusts; however, instead of reporting on financial activity, a statement is attached explaining that the trust is a grantor (donor) type trust and that all taxable income has been reported on the grantor's individual income tax return.

Perpetual Trusts

Generally, a perpetual trust is an arrangement where the donor transfers funds to a third party as trustee (such as a bank or foundation) with the stipulation that the college or university receive, in perpetuity, the income from the trust.

The institution will never receive the principal of the trust. The trust is perpetual; it essentially will never terminate.

Charitable Gift Annuities

A charitable gift annuity is similar to a charitable remainder annuity trust, except that no trust agreement exists. The donor transfers assets to Emory under an agreement that the university will make payments to a designated beneficiary (or beneficiaries) for a certain period of time, usually until the death of the beneficiary.

Payments to the beneficiary are reported annually to the Internal Revenue Service on Form 1099-R, Distributions from Pensions and Annuities.

Pooled Income Funds

A pooled life income fund represents an arrangement whereby contributions of multiple donors' life income gifts are pooled and invested as a group. Each donor is assigned a certain number of units, based on the amount contributed, and income is paid based on the number of assigned units. When the donor dies, the value of the units is released to the university.

The trust must annually file Form 1041, U.S. Income Tax Returns for Estates and Trusts, and the equivalent Georgia return reporting all income, gains, and losses. Because the trust is a charitable entity, no tax is imposed at the trust level. Taxable income flows through to the donor.

Simple and Complex Trusts

As a beneficiary of the remaining assets of charitable trusts, in some instances Emory may become trustee for additional testamentary trusts after the death of the beneficiary. The original donor may bequeath a portion of these assets to be held in trust for the benefit of non-charitable beneficiaries. These newly created trusts are known as either simple or complex trusts, depending on the terms of the donor's will and/or the terms of the CRAT or CRUT.

A simple trust requires all "distributable net income" to be paid to the beneficiaries, and all taxable income flows through the trust and is taxed at the beneficiary level. Income tax is imposed on the trust if it is a complex trust, and only certain items of income may be taxed to the beneficiary regardless of the amounts distributed.

Simple and complex trusts must annually file Form 1041, U.S. Income Tax Returns for Estates and Trusts, and the equivalent Georgia return reporting all income, gains, and losses. It is at this point the amounts taxable to the beneficiary and/or to the trusts are computed.

For More Information

For more information on these and other types of gifts, please visit the Office of Gift Planning.