Charitable Remainder Unitrust
Maximize your gains avoiding capital gain tax, creating more income for you and then a gift to charity.
How a Charitable Remainder Unitrust Works
You make a gift of an appreciated asset (or cash) to the Unitrust (CRUT), which may then be sold by the CRUT without paying capital gain tax. Sale proceeds are invested in one of our model portfolios and the trust will make payments for life, or for a term or years (not to exceed 20 years), to one or more named beneficiaries. Investment returns in excess of the stated trust payout rates are retained in the trust, on a tax-sheltered basis, and build trust values.
The stated CRUT payout rate must be at least 5%, may not exceed 50%. Additionally, the payout rate selected must result in a minimum calculated release value to the charity of at least 10% of the initial gift value.
You are entitled to a charitable deduction for a portion of the value of the gift. If you give cash, the deduction may be claimed up to 60% of your adjusted gross income. Deductions for gifts of appreciated assets may be claimed up to 30% of your adjusted gross income. Unused deductions may be carried forward for up to five additional years.
When the unitrust ends, assets remaining in the trust are distributed to the College and used as you have designated.
Three Types of Unitrusts
The three types of unitrusts are differentiated by how they make payments to beneficiaries.
1. Standard Unitrust
With this CRUT, you receive a fixed percentage of the annual value of the trust assets. CRUT assets are revalued at the beginning of each year, and trust payments for the year reflect asset value increases or decreases. Over the past 20 years, on average, 78% of the payments from unitrusts we manage have been taxed at capital gain tax rates or as qualified dividends.
2. Net-Income Unitrust
As the name implies, this CRUT type generally pays you the net income earned, generally defined as interest, dividend or rental income earned by the unitrust. Payments may be less than the stated payout percentage, and usually are, but may not exceed the stated trust payout percentage. This trust type is much less common.
3. The “Flip” Unitrust (AKA, the Real Estate Unitrust)
Flip trusts are most often used to accept gifts of “illiquid” assets such as real estate, and is a hybrid of the Net-Income and Standard Unitrust. A Flip trust starts as a Net-Income unitrust and initially pays you the net income earned or, the stated trust payout percentage, whichever is less. Then, on January 1 of the year following the year in which the property is sold, it becomes a Standard unitrust, i.e., “flips,” and you begin to receive the fixed stated payout percentage of the fair market value of the trust assets, regardless of trust income.
A Unitrust in Your Estate Plan
You may provide income for a spouse or other heir, by including a provision in your estate plan that directs your estate to transfer a set amount, a percentage of the estate, or a specific asset to establish a Charitable Remainder Unitrust payable a named individual. Commonly referred to as a testamentary Unitrust, we can provide you with the necessary language to accomplish this goal.
Fees & Expenses
If Claremont McKenna College is named as trustee and irrevocable beneficiary (of at least 50% of the remainder), there are no trust management or administration fees. Additionally, we will provide the trust documents at no cost. We do recommend that donors have their own legal counsel review all documents.
- There can be no binding sale agreement in place before a gift.
- Gifts over $5,000, may require an appraisal.
- Assets subject to debt require special planning.