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Charitable Remainder Unitrusts
(Complete gift description)
Sometimes we want to make a charitable gift but are deterred by the fact that we are still drawing from the bucket of income we have set aside for special uses: retirement, college funding, helping our loved ones in need, etc. If this is the case with you, then consider the charitable remainder unitrust, one of the most flexible gift plans available. The unitrust unlocks your ability to make a significant gift to the National Air and Space Museum while addressing multiple financial and family needs.
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. In general, here's how a unitrust works:
- The unitrust pays income for the lifetimes of the beneficiaries, for a term of up to 20 years, or for a combination of both.
- Beneficiaries receive a predetermined percentage of the value of the trust’s principal, as revalued annually.
- Excess appreciation is reinvested to maintain principal and promote growth.
- When your unitrust terminates, the remaining balance will be available to us for the purpose you designated.
What are the tax advantages of a unitrust?
- 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.
- 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 calculation for you.
Planning tip – grow your gift and your income
The unitrust is designed to pay you income as a fixed percentage of gradually increasing principal. We offer an alternative version designed to hold a temporarily illiquid asset or a portfolio of growth securities for a period of time, while it pays 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 property 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.
We can assist you and your advisers in considering the alternative of a net-income unitrust. Click here to see additional planning tips.
How do you create a Charitable Unitrust?
Setting up a charitable remainder unitrust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we can provide you with 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.
For more information
Email us, complete the personal illustration form, or call us at 202-633-2612 so that we can assist you through every step of the process.
Gift Planning Office
Independence Ave. at Sixth Street, SW, P.O. Box 37012
Washington, DC 20013-7012
202-633-2612 | Fax: 202-633-8174
E-mail: legacy@nasm.si.edu
Planned Giving content and Legacy Planner™ copyrighted © 2008 VirtualGiving.