To set up a Charitable Remainder Trust
For the benefit of the Minaret of Freedom Institute
For Muslims, waqf is a time-honored tradition for making donations of property to serve the ummah after your death and to continue to earn credit for good deeds after your body has been committed to the earth. Like planting a tree, writing a book, or raising a pious child who would pray for you, a charitable donation that continues to give benefit to mankind after your death provides a way to continue adding to your record of good deeds. A charitable trust that benefits the Minaret of Freedom Institute is a means for educating the world about Islam and liberty. You can continue to dispel harmful myths about Islam and promote freedom, trade, better understanding, and the prosperity of Muslims and all people after you yourself have passed from this world.
A charitable remainder trust is an excellent way to set aside your property for charitable giving after your death yet continue receiving income from the assets as long as you live. The remarkable part is that you can get an immediate tax deduction despite the fact that you continue to benefit from the income. The tax savings are especially large when highly appreciated assets are donated.
Just as with the classic waqf, you, as the donor, create the trust, appoint the trustee(s) and designate the beneficiary. You may appoint a friend, relative, or any person or institution you trust to serve as trustee. You may transfer money or property to the trust. The trust pays you an income as long as you live. Upon your death the funds remaining in the trust go to the Minaret of Freedom Institute. You can choose whether to structure your trust as an annuity trust (your income from the trust is a fixed percentage of the original gift) or as a unitrust (the income is based on the annual assessed value of the gift).
There are tax benefits as well. You get a tax deduction in the year the trust is established. You pay no capital gains taxes on the assets sold by the trust. You pay no income tax on earnings accumulated but not paid to you. (Income paid to you by the trust is, however, taxable in the year received.) The assets will not be included in your gross estate at death.
How does it work?
As an example, let's consider the hypothetical case of Ayesha Ali, fifty- year-old Muslimah who opens an annuity trust with a donation of $100,000 with herself as primary beneficiary, her grandchildren as secondary beneficiaries and the Minaret of Freedom Institute as the beneficiary of the remainder. (This case is strictly for illustration. The actual numbers in any case will vary depending upon the amount donated, the tax rates applicable, the annuity elected, the success of any investments, etc.) She is in the 40% tax bracket so she gets an immediate $40,000 off her federal income tax. She is in the 6% state tax bracket so gets and additional $6,000 off her state income taxes. She elects to receive 5% of the original investment as an annuity, so she receives $5,000 in annual income from the trust as long she lives. She elects to have Imad-ad-Dean, Inc. manage the trust as trustee and through buying and selling of halâl investments, the trust earns more money than is paid out so that it grows at an average 5% per year after payouts. Ayesha pays her ordinary income taxes on the $5,000 she collects each year but no taxes on the accumulated earnings or capital gains. After ten years Ayesha dies and her grandchildren now receive the income that formerly went to her, with no estate tax paid on the assets in the trust. Thirty years later the last grandchild dies and remainder of the trust goes to the Minaret of Freedom Institute for its educational and research work. The money has been excluded from both Ayesha's estate and that of her heirs.
Note what has happened: Ayesha got the same tax benefit that she would have gotten had she donated $100,000 outright to the Minaret of Freedom Institute, but so long as she lived, she continued to get income from the money as if she had not donated it all. Further she paid income tax on that money only as it was distributed to her. Now, suppose that Ayesha had retired at age sixty-five. If her income dropped due to retirement, and so would her tax bracket, making for an even lower tax rate. (Of course if Congress raises tax rates that might partially or completely erase such saving. On the other hand if Congress were to lower tax rates her tax payment would be even smaller.)
Note too that if Ayesha had chosen to establish a unitrust instead of
an annuity her income would have increased each year.
For more information, or to establish a trust for the benefit of the Minaret of Freedom Institute, contact:
Imad-ad-Dean Ahmad, Ph.D., Minaret of Freedom Institute, 4323 Rosedale Avenue, Bethesda, MD 20814-4750
Ph: 301-907-0947 • e-mail: [email protected]