Felix owns stock, which he bought years ago for $400,000, that is now worth $1.6 million but pays very little in dividends. If Felix sold the stock and bought income-producing assets, he would owe capital gains tax of $240,000. Instead, he sets up a charitable remainder trust with his alma mater as the charitable beneficiary.

For income tax purposes, his donation to the charity is the full market value of the stock, $1.6 million, less the amount Felix is likely to receive, based on his age and current interest rates. He takes this amount as a tax deduction over five years.

The charity, as trustee, sells the stock and receives a profit of $1.2 million, which is reinvested. The trust document requires Felix to be paid 6% of the trust value annually for life. He'll get $72,600 the first year; the amount will change each year as the value of the trust assets changes. If Felix lives 20 more years, the trust will pay him at least $72,600 x 20, or $1,452,000. If the trustee invests the original $1.6 million wisely, it -- and the payments to Felix -- should increase significantly.