Putting the “You” in Unitrust
People who support our mission do so out of a spirit of generosity and concern for humanity. Nonetheless, charitable contributions often can be planned to blend with the personal goals and objectives donors have for themselves and their families. Charitable remainder unitrusts can be a remarkable tool for achieving these objectives.
How Does a Unitrust Work?
A charitable remainder unitrust is an arrangement into which you irrevocably place cash, securities or other property, but keep a variable income ¬– usually for life. When the trust ends, the property in the trust passes for our benefit, much as if you had left it in your will. But because you chose to “accelerate” your bequest by means of a trust, Congress says you are entitled to a substantial income tax charitable deduction. Depending on how you arrange your unitrust, many other advantages are possible:
The unitrust must provide that a specific percentage (minimum 5%) of the value of the property in trust be paid annually. If the value of the trust increases, the payout will increase, too. Decreases are also possible. Most unitrusts pay out 6% or 7% annually.
The amount of the deduction generally will depend on the age or ages of the people receiving payments and the amount of the benefits you want to receive each year. For example, a trust that pays a 6% income to a person age 70 will produce a deduction for about 48% of the amount placed in trust. We can provide you with exact figures for your situation.
You can fund your unitrust with cash, but if you transfer highly appreciated assets, such as securities, real estate (that is debt free) or even collectibles, the trustee can sell and reinvest free of capital gains taxes.
Unitrusts can help our friends achieve important goals. Here are a few examples
Restructure a portfolio.
Mrs. G wanted to cash in on success in the stock market and move more of her portfolio into bonds, but hesitated because of high capital gains taxes. Solution? Mrs. G transferred highly appreciated stock (owned more than one year) to a unitrust that will eventually benefit our programs. The trustee now can sell the stock, avoid all capital gains taxes and provide her with an income for life – higher than her current dividends. She will receive a charitable deduction, as well.
Relieve management burdens.
Mr. K was tired of being a landlord for
several apartments and an office building. Solution? Mr. K transferred his rental property to a unitrust, which relieved him from property management, saved income taxes and capital gains taxes and produced an income that is higher than he had before.
Provide for college.
Mrs. H wanted to make an important gift and also set up a college fund for her grandchildren, ages 3, 5 and 7. She established a “flip” unitrust that will last 20 years and make payments to her grandchildren, but only while they are in college. The trust will be invested to grow significantly but pay little or no income until the first grandchild enters college. Mrs. H helps her grandchildren, reduces her taxes and the trust eventually supports our programs.
Cash in collectibles.
Ms. R owns a collection of rare books and valuable antiques that she wishes to liquidate and reinvest for a good income. Capital gains taxes would take 28% of her profits – but she can avoid this tax if the items are sold by the trustee of her tax-exempt unitrust.
Age of 5% Annual 6% Annual 7% Annual
Beneficiary Payout Payout Payout
60 $38,469 $32,550 $27,770
65 45,256 39,327 34,383
70 52,667 46,945 42,025
75 60,454 55,169 50,497
80 68,044 63,380 59,151
Augment retirement savings.
Mr. B needs additional tax relief during his years of high income – and a supplementary retirement savings vehicle that permits tax-free growth of his nest egg. The “retirement unitrust” can be a useful planning tool for Mr. B. With proper planning, such a trust could provide (1) a large income tax deduction, (2) deferral of much – perhaps all – of the trust income until Mr. B retires, (3) payment of substantial income after retirement and (4) an important gift to our future when the trust ends.