Charitable Remainder Unitrust
This is a qualified irrevocable trust which makes payments to the donor or to family members for life or for a period of years. After the payments have been completed, the remainder is distributed to qualified charities. The person who establishes the trust may select the person(s) to receive payments from the trust, and the charity or charities which will receive the principal of the trust after payments are completed. The major benefits of the trust are:
- Capital gains tax advantage
After a good investment has appreciated, the yield or earnings may be quite low. Sometimes it is wise to sell an asset and reinvest the proceeds in a new asset for maximum investment gain. The unitrust is an ideal way to make this reinvestment, since the capital gain is not realized when the trust sells the asset. Thus the full amount received from the sale is effectively reinvested. If you sold the asset yourself and funded the unitrust with the proceeds, you would realize the capital gain and have to pay the tax on it on that year’s federal income tax return. [read more about taxation of unitrust payments]
Mature investment assets frequently earn between 2% and 4% per year. The unitrust enables an asset with low income to be sold without tax, and the proceeds invested in assets earning a higher income.
The government permits the grantor (the person who establishes the irrevocable trust) to take an immediate charitable income tax deduction. The deduction is a percentage of the value of the property transferred to the trust and is calculated using the age(s) of the income beneficiary(ies), the unitrust percentage, and the assumed interest rate required by the IRS.
Each unitrust must have a trustee. The trustee invests the trust assets, conducts any sales, makes payments, and files the appropriate information and tax forms. Since the trust may last for many years, it is important to select a trustee in whom the donor has confidence. Covenant Trust Company® serves as trustee for charitable remainder unitrusts as well as other trust types. The entire residue of the trust must be designated for charitable ministries. Covenant Trust Company will serve as trustee without charge as long as 50% or more of the residue remaining at the death of the last income beneficiary or $50,000 [whichever is greater] is designated for one or more Covenant ministries of the donor’s choice.
Does a unitrust sound attractive for your situation? Contact your local Financial Services Representative for more information. [view Directory]
View our Gift Legacy pages for more information about unitrusts.