Charitable Remainder Unitrust

A charitable remainder unitrust (CRUT) pays variable income until the death of the income beneficiary or the expiration of a set term of years. At the termination of the trust, the trust assets must be used for charitable purposes. When the trust is created, you determine the annual percentage (at least 5%) of the fair market value of the trust assets (unitrust amount) that the income beneficiary is to receive for life or for a term that you determine (fixed term may not exceed 20 years).

The charitable remainder interest of the trust must equal or exceed 10% of the value of the assets funding the trust.  Generally, the older the income recipient, the larger the charitable remainder interest; the greater the annual payment, the smaller the charitable remainder interest.

Example: You create a $200,000 CRUT and specify a 6% rate for an annual payment of $12,000.  If the trust value declines during the next year to $160,000, the payment for the next year will be $9,600.  If the value increases to $240,000, the payment would increase to $14,400.
There are four variations of the unitrust.

The standard straight unitrust distributes the unitrust amount each year, even if the trust income is less than the unitrust amount. The principal of the trust is used if there is an income deficiency.

The net income unitrust pays only the trust income if the income is less than the unitrust amount.

The net income with make-up unitrust pays only the trust income if the income is less than the unitrust amount; if this occurs, a payment deficiency is recorded.  In subsequent trust years, if trust income exceeds the unitrust amount, the excess trust income is paid to the income beneficiary to the extent of any payment deficiency, thus payments are "made-up".

The "flip" unitrust pays an amount initially based on trust income (net income) but later based on the value of the trust assets each year (standard). The payment method change usually follows the sale of non-income producing property or the attainment of a future date coinciding with an anticipated need for larger payments.

For more information about trust services or any other service provided by New Covenant Trust Company, please contact Chip Walker at 800-528-4083, ext. 5912 or e-mail at cwalker@newcovenanttrust.com. Contact your tax advisor to determine how these trusts would actually affect your estate.