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 Helpful Articles
from David Vollrath,
Union County Foundation Executive Director
The Foundation encourages you to work closely with your professional advisor(s)
as you develop your estate plan and consider your present and future charitable goals. |
What is a Charitable Remainder Unitrust?
(Part of a series of articles on charitable giving and the Union County Foundation
by David Vollrath - Exec. Dir.)
A charitable remainder unitrust is quite simply a planned giving tool that can provide
the donor increased lifetime income, substantial tax savings, and ultimately benefit the charity(s) of ones choice.
Too often potential donors don’t consider the idea of setting up a charitable trust because they feel it's “just
too complicated” or they really don’t understand the benefits.
In simple terms a charitable remainder unitrust is a special type of trust agreement that
pays specific lifetime income to designated people (usually a husband and/or wife) at a fixed percentage. Upon
the completion of the payments the remaining value is distributed to qualified named charities. The person who
originally establishes the trust designates who is to receive payments from the trust, what percentage of the trust
value is to be paid out annually (usually 5%-7%), and what charities will ultimately benefit.
Many people fund their charitable unitrusts with appreciated assets. When assets are sold
within the trust, capital gains tax is by-passed and the full amount received from the sale of the assets can be
reinvested to produce income for the trust. In today’s market many assets only yield I%-3%. The charitable unitrust
provides a framework for converting low yielding assets into a higher income-yielding instrument.
The term unitrust is derived from the fact that once a year, usually on January
1st, the value of the trust is established. The year’s payout will then be equal to the trust’s value multiplied
by the designated percentage. For example a $100,000 trust with a 6% designated payout percentage will payout $6000
annually. If that same trust is valued at $106,000 on January 1st of the following year the payout will increase
to $6600 for that specific year.
Because charity is the ultimate beneficiary, the person who originates the charitable
remainder unitrust receives an initial tax deduction based on the present value of the future gift to charity.
This deduction can be substantial and can be carried forward for up to five tax years.
A charitable remainder unitrust agreement must always designate the following four items:
1. Unitrust payout percentage specifies what percentage of the annual trust
valuation will be paid out.
2. Duration specifies over what period of time the payments will be made. This
may be for one life, two lives, or a term of 1-20 years.
3. Beneficiary specifies what charity is to receive the trust remainder.
4.Trustee specifies who is to oversee the investments and administration of
the trust. This can be a bank, community foundation, charity, trust company, or individual.
The Union County Foundation is equipped to assist you with establishing a charitable remainder
unitrust or in answering questions you may have regarding this or other planned giving instruments. Please call
us at 642-9618, email us, or stop by our Marysville office at 126 N. Main St. We are here to help you.... “preserve
your footprint in time.”
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