Planned Giving
Charitable Remainder Trusts
A Charitable
Remainder Trust is established for the life of the donor (also
trustor or grantor) and/or for the life of any beneficiary(-ies)
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 twenty years.
The twenty-year maximum does not apply if the trust life is
based on the life expectancy of the income beneficiary(-ies).
 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 an annuity income or a unitrust income.
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.
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. If the value of
the principal in the unitrust declined, the value of the interest
portion of the unitrust would decline as well. The unitrust
interest value would increase if the value of the trust assets
increased.
 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. 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. A
net income charitable remainder unitrust can be an excellent
way to donate appreciated property and turn it into an income
stream as well as acquire tax benefits.
A donor
may also add a "makeup provision" to the trust.
This allows a trust to distribute more than the fixed percentage
of the assets in years where the trust's income exceeded the
fixed percentage. In this manner, previous years' shortages,
when the trust was not able to earn the fixed percentage payment,
may be made up.
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 1st 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. |
Return to Previous Page 
