          
          
          
          Choosing the Payout Rate:
          
          
               Let's consider first the decision concerning
          establishing the payout rate itself.
               If your immediate need is for high income levels,
          choosing a relatively high payout rate makes some
          sense.  But if you are a donor beginning retirement,
          you should choose a payout rate that leaves sufficient
          funds in the CRT each year to keep your trust income
          ahead of projected inflation.
               One approach would be to specify a relatively high
          payout rate, say 8 percent, and permit payment to be
          made from principal if trust net income is insufficient
          to meet this obligation to the beneficiary.  In such a
          case investment would be almost entirely for growth
          purposes and well-capitalized growth stocks might be
          the place to look.
               From 1946 through 1991, the best U.S. stocks have
          produced a return averaging about 12.7 percent
          annually.  With an 8 percent payout and a growth stock
          investment policy, after administrative costs, it can
          reasonably be expected that about 4 percent of the fund
          could be added to trust principal each year.
               The difficulty with this approach is that the
          annual rate of return left in the CRT each year must at
          least equal or surpass the annual rate of inflation, in
          order to preserve the purchasing power of future
          distributions and the ultimate remainder interest.  An
          equal problem will be that annual payouts will be
          highly variable from year to year, because of
          inevitable fluctuations in the stock market.  The
          donor/beneficiary must be willing to put up with this
          variable payout prospect as the price of higher
          investment income.
               Economic realities in the U.S. and the world will
          make it difficult, if not impossible, to produce a
          gross income return in excess of 8 percent, even if the
          CRT portfolio is invested totally in fixed income
          holdings, assuming the purchase of investment grade
          debt instruments.  Expenses chargeable to income must
          also be subtracted, so the net income is likely to be
          even lower.  For comparison's sake, consider that the
          highest quality long term bond yields have historically
          averaged about 4 to 5 percent a year.  Assuming that
          the CRT will hold long term bonds to maturity, this
          part of the trust principal will not grow with
          inflation.  Remember that if the CRT principal does not
          grow, neither does the income of the beneficiaries.
               As an illustration of what happens when these
          factors are applied to CRT investment, a good case can
          be made that a conservative 5 percent payout rate will
          have the best all around results in the long term, if
          there is the right mix of investments and careful
          management.
               Assume in year one $1 million available for
          investment; a total trust investment mix of about 40
          percent bonds with an annual 7 percent rate of return,
          30 percent Standard and Poor's 500 stocks with a return
          of 12.7 percent, and another 30 percent split evenly
          between fast-growing U.S. and international small
          equities with rates of return of about 15 to 16 percent
          plus.  Under this investment mix, with a 5 percent CRT
          payout rate, the $1 million will blossom in 20 years to
          about $4,800,000, of which $2,326,000 will be paid out
          to the beneficiaries.
               Compare this with the choice of a higher 7 percent
          CRT payout rate; the same $1 million invested totally
          in safe no-growth long term bonds at 7 percent net
          annual return, in 20 years will leave only $1 million
          in principal, after cumulative annual beneficiary
          payments of $1.4 million.
               Check that comparative 20-year record again: a 5
          percent payout rate with a carefully mixed investment
          policy produces $2.3 million in benefits; a 7 percent
          payout rate with a no growth investment policy produces
          $1.4 million in benefits.  The 5 percent choice ends up
          with $4.8 million remainder for charity, the 7 percent,
          only $1 million - each with concomitant charitable
          income tax deductions for the donor in the first year
          based on the rate of payout chosen in year one.
          
          
          
