Charitable Remainder Unitrusts

The Charitable Remainder Unitrust is the most flexible gift plan available. The unitrust addresses multiple financial and family needs, unlocking your ability to make a significant gift to the AADC.

• The unitrust is an individually managed trust paying its beneficiaries – you, your spouse, family members, or other individuals – income as a fixed percentage of the value of its principal, which is revalued annually. Income in excess of the unitrust amount is reinvested to maintain principal and allow for growth.
• Income can be paid for the lifetimes of the beneficiaries, or for a term of up to 20 years.
• If you fund a unitrust with appreciated securities or property, no upfront capital gains tax is payable. You can contribute appreciated but low-yielding assets and put the entire value of your gift to work generating higher income for you.
• Similarly, no capital gains tax is applied to the growth of a unitrust’s principal. One version of the unitrust, explained in more detail below, maximizes growth for a term, then reinvests the appreciated principal in income investments with no reduction for capital gains tax.
• Besides avoiding capital gains tax, you also receive a charitable deduction when you create a unitrust. Your deduction will be based on the full fair market value of the assets you contribute, reduced by the present value of the assets you retained. We can generate this deduction amount for your planning purposes.
• When your unitrust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be available to the Associate Alumnae of Douglass College for the use you designated when you created the trust.
• You, an advisor, or a financial institution may serve as the trustee of your unitrust.

Planning Tip: Grow Your Gift, and Your Income

The unitrust is designed to pay you income as a fixed percentage of gradually increasing principal. An alternative version holds a temporarily illiquid asset or a portfolio of growth securities for a period of time, while paying the beneficiaries the lesser of the unitrust amount or the trust’s actual net income. Called a net-income unitrust, this option is especially useful to donors who want to make a gift and secure a tax deduction now but who don’t need income back immediately.

A net-income unitrust can continue in that format for its entire term, or it can make up the accrued difference between actual income payments and the unitrust amount in years when it earns surplus income. An attractive option is the flip unitrust, which changes from an income-only payout to a fixed-percentage distribution when a pre-arranged event occurs – such as the beneficiary turning 65 or the building placed in the unitrust being sold.

A net-income unitrust can change its investments to income instruments with no capital gains liability. Therefore, it is an attractive tool for younger donors to build a supplementary retirement or tuition fund that will grow tax-free, then distribute income when they and their family need it most.

The Office of Gift Planning can assist you and your advisors in considering the alternative of a net-income unitrust.

How Do You Create a Charitable Unitrust?

Consult with an attorney specializing in charitable trusts and estate planning. To save you time and expense, we can provide an initial draft of the unitrust agreement for review by you and your attorney. Once your trust agreement is signed, you can "fund" your unitrust by transferring assets to your trustee.

Email us, complete the personal illustration form, or call us at 732-246-1600 so that we can assist you through the process.