Establishing a “Private” Retirement Account

An individual who wishes to provide retirement security for a personal nurse, housekeeper or another household employee might consider options that also assist charity.

Charitable remainder trust—The trust is tax-exempt, like qualified retirement plans, with payments made for the life of the employee. There are no complicated funding formulas or limitations on contributions. There may be gift taxes on a portion of the assets transferred to the trust, but a charitable deduction would be allowed for the value of the remainder interest. The trust can be structured to pay a fixed annual amount (annuity trust) or a fixed percentage that fluctuates with the annual value of trust assets (unitrust).

Charitable gift annuity—Gift annuities make fixed payments for life to one or two individuals, based on the age(s) of the annuitant(s). A donor establishing a gift annuity for another person should fund the annuity with cash rather than appreciated securities to avoid an immediate capital gains tax on the annuity portion of the gift. A large portion of the annual payment will be tax-free for the life of the annuitant. The donor can even establish a deferred gift annuity to begin payments at some future date, resulting in a larger charitable deduction and annuity payout rate. Potential gift taxes can be avoided by retaining the right to revoke the annuitant’s interest, with all or a portion of each year’s payment eligible for annual exclusion treatment.


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