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A Charitable Remainder Trust is established
for the life of the donor (also trustor
or grantor) and/or for the life of
any beneficiary and is irrevocable.
While there are certain changes that
may be made, once the trust is established,
it cannot be revoked. If it is desired,
the income period of the trust can
be established for a specified period
of time not to exceed 20 years. The
20-year maximum does not apply if
the trust life is based on the life
expectancy of any income beneficiary.
 Because
the income is paid to one or more
parties and, at the end of the trust's
life, the principal and any undistributed
interest is paid to a different party,
a charitable remainder trust is called
a split interest trust. The income portion of the trust may be either a unitrust income
or an annuity income.
With a unitrust, the assets of the trust are revalued annually and the
percentage rate established in the trust agreement determines the dollar
amount of the unitrust interest. The unitrust interest amount would increase
if the value of the trust assets increased. If the value of the principal
in the unitrust declined, the amount of the interest portion of the unitrust
would decline as well.
An annuity income is calculated at the time the trust is established
in the trust agreement. It is a fixed amount of dollars based on the then
market value of the trust. If the assets of the trust go up in value,
the income portion does not change.
A charitable remainder trust is an
attractive planning tool for the disposal
of highly appreciated assets. While
the assets revert to the charity rather
than the heirs of the estate, the
use of an irrevocable life insurance
trust in conjunction with a charitable
remainder trust could replace the
asset's value for the heirs.
Net Income
Charitable Remainder Trust
This variation of a unitrust provides
that either the specified fixed percentage
of the trust assets or the net income
of the trust is distributed to the
beneficiary, whichever is less. The
trust can be structured to make up
prior missed income payments (net
income with makeup) or not. This type
of trust is often used to handle real
estate as there is no fixed distribution
requirement, giving the trustee time
to arrange an orderly sale of the
property. There are limitations to
a net income unitrust that were addressed
with the creation of a flip unitrust
in 1998.
Flip Charitable
Remainder Unitrust
A flip unitrust blends two types
of trusts for greater flexibility,
both for the donor and the eventual
remainderman. The trust functions
as a net income trust until a specified
event occurs. On January 1 following
the specified event, the net income
trust flips and becomes a standard
unitrust. This type of trust functions
well for illiquid assets such as real
estate or assets that are hard to
value. Click here for more information
on flip
unitrusts.
Return to Charitable
Remainder Trust story or to Real
Estate story.
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