Charitable Remainder Unitrusts

Complete Gift Description

Sometimes we want to make a charitable gift but are deterred by the fact that we are still drawing from the bucket of income we have set aside for special uses: retirement, college funding, helping our loved ones in need, etc. If this is the case with you, then consider the charitable remainder unitrust, one of the most flexible gift plans available. The unitrust unlocks your ability to make a significant gift to the American Heart Association while addressing multiple financial and family needs.

The unitrust is an individually managed trust paying its beneficiaries – you, your spouse, family members, or other individuals – income as a fixed percentage of the value of its principal, which is revalued annually. In general, here's how a unitrust works:

  • The unitrust pays income for the lifetimes of the beneficiaries, for a term of up to 20 years or for a combination of both.
  • Beneficiaries receive a fixed percentage of the value of the trust’s principal, which is revalued annually.
  • Income in excess of that unitrust amount is reinvested to maintain principal and allow for growth.
  • When your unitrust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be available to us for the use you designated when you created the trust.
  • When your unitrust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be available to for the use you designated when you created the trust.

What are the tax advantages of a unitrust?

  • If you fund a unitrust with appreciated securities or property, no up-front capital gains tax is payable. You can contribute appreciated but low-yielding assets and put the entire value of your gift to work generating higher income for you.
  • Similarly, no capital gains tax is applied to the growth of a unitrust's principal. We offer a version of the unitrust – explained in more detail in this example – that maximizes growth for a term, then reinvests the appreciated principal in income investments with no reduction for capital gains tax.
  • Besides avoiding capital gains tax, you also receive a charitable deduction when you create a unitrust. Your deduction will be based on the full fair market value of the assets you contribute, reduced by the present value of the assets you retained. We can generate this deduction amount for your planning purposes.

Planning tip – grow your gift and your income

The unitrust is designed to pay you income as a fixed percentage of gradually increasing principal. We offer an alternative version designed to hold a temporarily illiquid asset or a portfolio of growth securities for a period of time, while it pays the beneficiaries the lesser of the unitrust amount or the trust's actual net income. Called a net-income unitrust, this option is especially useful to donors who want to make a gift and secure a tax deduction now but who don't need income back immediately.

A net-income unitrust can continue in that format for its entire term, or it can make up the accrued difference between actual income payments and the unitrust amount in years when it earns surplus income. An attractive option is the flip unitrust, which changes from an income-only payout to a fixed-percentage distribution when a pre-arranged event occurs – such as the beneficiary turning 65 or the property in the unitrust being sold.

A net-income unitrust can change its investments to income instruments with no capital gains liability. Therefore, it is an attractive tool for younger donors to build a supplementary retirement or tuition fund that will grow tax-free, then distribute income when they and their family need it most.

We can assist you and your advisers in considering the alternative of a net-income unitrust. Click here to see additional planning tips.

How do you create a Charitable Unitrust?

Setting up a charitable remainder unitrust is not particularly difficult, but you should be advised by an attorney with expertise in the area of charitable trusts and estate planning. To save you time and expense, we can provide you with an initial draft of the unitrust agreement for review by you and your attorney. Once your trust agreement is signed, you can "fund" your unitrust by transferring assets to your trustee.


For more information

Email us, complete the personal illustration form, or contact the charitable estate planning representative in your area so that we can assist you through every step of the process.