Charitable Remainder Unitrust:

The percentage payment you receive from a Unitrust varies from year to year as the fair market value of your trust assets fluctuates.  If the value of the trust assets increases, so too would your payments.  Because you need to specify a certain percentage (at least 5% by law), if the assets in your trust perform better than that percentage, the rest returns to your trust so the fund actually grows, thereby increasing your payments.  You may view this as a possible hedge against inflation, assuming growth in value of the trust assets is somewhat comparable to the inflation rate.  The reverse is also true.  If your trust earns less than the percentage you specify, you will still be paid that same percentage, possibly eroding your principal and lowering your payments.

If you want to emphasize asset growth and a higher charitable deduction, you would establish a lower trust payout rate.  If you select a higher trust payout rate, you’ll receive a greater annual payment and lower charitable deduction.

You can fund a unitrust with cash or, ideally, with long-term, highly appreciated securities.  The charitable deduction you’re allowed is based on the fair market value of the assets (even though you may have purchased them for much less), the payout rate you choose, the number of individual beneficiaries you specify, and the age of the beneficiaries or the term of years the trust is established.  Your tax, legal and financial planning counsel can help you assess the options best suited to your situation.

Donor Benefits

  • Ability to provide lifetime income for yourself or other named beneficiaries as well as make a significant charitable gift
  • Variable income feature based on annual value of trust’s assets may provide a hedge against inflation as assets grow in value
  • Savings on estate taxes
  • No capital gains tax paid by Unitrust
  • Realize an immediate charitable tax deduction
  • Increase income by converting low yield assets
  • Additional contributions are allowed