The trust then pays you an income for life. At the start, you decide on the fixed dollar amount you want to receive each year in quarterly installments. In the year in which you create and fund an annuity trust, you get a sizable income tax charitable deduction. This is based upon the value of our right to receive the remainder of the trust assets after your lifetime. The value is determined by official U.S. Treasury average lifetime expectancy tables.
Any excess is deductible over the next five years.
As Janet used appreciated securities to fund her trust, she will pay no tax on the appreciation. Her deduction is calculated on the current market value of the securities instead of their lower cost basis. As you might expect, the older the beneficiary of a newly established annuity trust, the higher the charitable deduction. If a survivor is named as a beneficiary, the charitable deduction is lower because the payments continue for a longer period. This depends on the strategy followed when the trust assets are invested or reinvested.