Charitable Remainder Unitrusts: FAQs

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.

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.

During your lifetime you would need to first withdraw funds from your retirement plan and pay taxes on those funds. You could then give the remaining funds to a unitrust. This almost never makes financial sense from a tax planning standpoint.

However, there may be new opportunities for some donors in the recently enacted SECURE Act. This Act mandates that most beneficiaries of Retirement Plan Assets, other than a spouse must withdraw all funds and pay taxes on them within a 10 year period. This can result in much larger taxes for beneficiaries and result in no further financial benefits after the 10 year period. Donors wanting to mitigate the annual taxes AND provide lifetime income benefits for heirs may want to consider leaving their Retirement Plan Assets to a charitable remainder trust. The real beauty of this plan is the ultimate support it provides for your favorite Valley charity.

A Charitable Remainder Unitrust is a powerful tool that can save you income, capital gain, estate, and inheritance taxes depending on your circumstances and state of domicile. A qualified advisor is crucial to assist you in maximizing these benefits.