A charitable remainder unitrust is for you if…
A charitable remainder unitrust is a separately invested and managed charitable trust that pays a percentage of its principal, revalued annually, to you and/or other income beneficiaries you name for life or a term of years (up to a maximum of 20). You receive a charitable income tax deduction for a portion of the value of the assets you place in the trust. After the unitrust terminates, the balance or "remainder interest" goes to the Diocese to be used as you designate.
The most flexible life-income plan, a unitrust is a powerful vehicle for benefiting yourself, your heirs, and the Diocese.
You can use almost any asset to fund a unitrust, including cash, publicly traded stocks and bonds, closely held stock, partnership interests, and real estate. You can tailor your unitrust to meet many financial or estate planning goals. You can choose to receive income beginning immediately or you can structure the trust and its investments to defer most of your income to a future time (a FLIP Unitrust). If you are insurable, you can even use some of the income or tax savings produced by your plan to purchase a life insurance policy that replaces your gift and flows to your heirs outside of your estate ("wealth replacement"). We can assist you and your advisors as you design the right unitrust to achieve your goals.
A FLIP Unitrust defers income payments until a future date when the income switch “flips” on. Until that predetermined time, the trust pays net income only. If no net income is produced, the trust pays nothing. Once the “flip” event occurs, the trust converts or “flips” to a standard unitrust that pays a defined percentage of the fair market value of the assets to the beneficiaries beginning January 1st of the following year. This flexible feature allows the trust to defer income payments until the sale of an illiquid asset, such as real estate, or to flip on a particular date set up at the time of the trust. If you set up a Professional Retirement Unitrust, the trust “flips” at your pre-determined retirement date, meaning that it then provides you with supplemental income in retirement starting January 1 of the following year. It is a great way to make a gift and supplement retirement at the same time.
In working with your team of professional advisors, a number of choices are available as to who would be the best trustee for you. Please contact us to discuss this further.
If the assets in the trust are liquid such as cash or securities, typically a unitrust is invested in a balanced portfolio that is designed to produce both income and growth over the term of the trust. If the trust assets are primarily nonliquid assets such as real estate or personal property, the trust may be held for growth in capital appreciation rather than current income. At some later date, the nonliquid assets could be sold (avoiding capital gains taxes) to be reinvested to produce income for the income beneficiaries.
Gifts of cash or appreciated property yield almost the same results for tax deduction purposes. However, gifts of appreciated property have the added value of avoiding capital gains taxes.
Your income will be taxed according to the type of investments and payout rate of the trust. You will usually pay tax at the ordinary income level on any ordinary income that is distributed, up to your full payment. The rest of your income will be taxed at the next lowest rate, usually as capital gains, then as tax-free return of principal. If you desire to know your taxation rates when you fund your life income gift, you might want to consider a charitable gift annuity or deferred gift annuity.
In most cases, yes. The value of the trust principal will be determined by a qualified appraisal of the property. However, real estate or other property may not be producing income and thus the income beneficiaries may receive no or very little income until these assets are sold and reinvested to produce income.
Yes, subject to certain limitations.
A Charitable Remainder Unitrust is a powerful tool that can save you income, capital gain, estate, andinheritance taxes depending on your circumstances and state of domicile. A qualified advisor is crucial to assist you in maximizing these benefits.