Charitable remainder unitrust is different than a charitable remainder annuity trust, in that they are both defined by federal tax law to allow donors to provide payments to themselves and others, but the amount of the payment that is provided is different with the unitrust than it is with an annuity trust. The payments just like an annuity trust can be for the lifetime of the beneficiaries, the income beneficiaries, or it can be for a fixed term of a year, or a combination of two. As a unitrust donor, the donor irrevocably transfer assets, usually cash, securities, real property, to a trustee of their choice. During the unitrust term, the trust invests the unitrust assets. Each year, the trustee distributes a fixed percentage of the unitrust current value as revalued annually to the beneficiaries. So this is the part that is different from the annuity trust. The annuity trust amount is fixed from day one. Every year, it's the same amount. It never changes. Doesn't matter what the current value of the assets or that are inside the charitable remainder annuity trust. With the charitable remainder unitrust, each year, the trustee distributes a fixed percentage of the unirust's current value as revalued annually to a beneficiary. So every December 31st, the trustee will say what is the balance and then they'll take the fixed percentage. If it's five percent, they'll take five percent of the the end of the year balance. And then for the next year, that will be the payments to the income beneficiaries. And then at the end of the next year, they'll look at the value of the trust assets again and take five percent of that value and then that would be the payments to the income beneficiaries for the following year. So, every year, the payments to the income beneficiary are revalued based on the value of the assets in the charitable remainder unitrust. So, if the value goes down, the payments go down. If the value goes up, the payments go up. So there is some flexibility in the amount that the income beneficiary would receive each year. So for this reason, it may be to their advantage to choose relatively low power percentage so that the unitrust assets can grow which in turn will allow the unitrust yearly payments to grow. Payments must be between five percent and 50 percent of the trust's annual value, or are made out of trust income or trust principal if income is not adequate. Payments may be made annually, semiannually, or quarterly. So, the minimum payout rate for a charitable remainder annuity trust or unitrust is five percent. With the charitable remainder unitrust, it may be in the donor's best interest to be as close to that five percent as possible because that will allow the assets of the trust to grow. And so, every year that they're taking five percent, they're taking it against a larger number as the assets in that trust grow, and therefore, the donor's payments will also grow over time. If they set the payout rate at 50 percent which is the max, it's a guarantee that every year, the trust assets will be decreasing because you couldn't invest the assets in a way to generate a 50 percent return. So every year the assets will be decreasing, and so you'll be taking 50 percent of a decreasing number, and eventually those trust assets will go to zero and the payments would stop. If there's no assets in the trust, then there's nothing to make payments from. Benefits of the charitable remainder unitrust similar to the annuity trust in that the donor would get a federal income tax deduction subject to the same rules for long-term appreciated property, and at 30 percent of the adjusted gross income, and in cash or short term or appreciate property at 50 percent adjusted gross income. If they can't use the charitable of reduction in year of the gift, they get to carry it forward for up to five additional years. So in essence, you have six years to use the total amount of the charitable deduction. Beneficiaries named by the donor receive annual payments for life, or for the period that the donor has designated. If the donor funds a trust with long-term appreciated assets and the trust sells it, then there is no immediate tax on the capital gains. If they don't want sell such an asset themselves, the donor would tax on all the capital gains realized on the sale. Because they're irrevocably transferring the assets to the trust, they would reduce their probate costs and estate taxes because this is no longer an asset of the estate, and the donor will provide generous support to the charity. And the gift will benefit from the expert asset management just like if it was a terrible annuity trust. The goals for the donor typically with a charitable remainder annuity trust, the donor wants to secure fixed income. They don't want the volatility of their payments changing every year. Charitable remainder trust will provide a large immediate income tax deduction and typically, will provide a larger remainder than a charitable gift annuity. And for a charitable remainder trust, typically the donor would be younger and they would be more willing to take the variable income, the risk that it could go up and down from year to year for themselves or for their loved one. So, when you're looking at a particular donor and the donor's goals, and trying to assess whether a charitable remainder trust is the right vehicle for the donor, these are some factors that you would consider. Obviously, what type of income are they looking for? If they're looking for variable income, a charitable remainder unitrust is one of the few plaguing vehicles that provide that kind of variable income or income that can grow over time. Most other vehicles provide an annuity. So, if somebody is looking for that, charitable remainder unitrust is important. So what type of income they're looking for is important. If it's fixed income, then you have a couple of choices. It could be a charitable remainder annuity trust or could be a charitable gift annuity. Other factors to consider is, what size of an income tax deduction is the donor wanting to receive? If they've had a taxable event and they're really trying to maximize the amount of tax deduction they can get, then they're probably going to look at a charitable remainder trust versus the charitable gift annuity because they will provide the larger charitable tax deduction. And obviously, this is a gift to charity and so you're also wanting to consider what is the charitable remainder. And certain vehicles provide an opportunity for more of a remainder to be left to charity than others. With a charitable gift annuity, the estimate is that the charity should end up with approximately 50 percent of the gift value at the end of that contract. So, if a donor puts in a $100,000 to a charitable gift annuity, the charity is expecting at the end of that to receive $50,000. Certain charities are obviously receiving more because they have the ability to invest their gift annuity pool in a way that yields higher returns. And so, there are charities that are receiving more than 50 percent, but it's very likely that it will be less than the gift value from a charitable gift annuity. So the charity is almost assured that they will not receive the amount of the gift that the donor funds the gift annuity with. So if the donor put in $100,000, the charity is not going to receive $100,000, they're going to receive something less than that and the charity is okay with that. But the important part is to make sure that the donor understands that, and that the impact the donor wants to make at the charity can be accomplished with that gift annuity. So if they want to make a $100,000 impact to the charity, then they can't give a $100,000 to a charitable gift annuity because it like would only make a $50,000 impact. With the charitable remainder trust, there is the opportunity to not only receive the gift value at the end of the charitable remainder trust, but it could potentially increase over time, particularly with a charitable remainder unitrust. As the value of that trust grows over time, that means the value of the charitable remainder is also growing. And so, if a donor is wanting to utilize a vehicle that they could put a $100,000 into and it may grow to a $150,000 by the end of their lives, then instead of having a $100,000 impact on the charity, they've had $150,000 impact on the charity. So it's important to keep in mind what the donors impact is. And so, those are the goals typically of a donor who's wanting to do a charitable remainder trust is, they're wanting to secure some source of income for themselves or a loved one. They want a larger immediate income tax deduction. And they're concerned with making sure that the charity gets as much as they possibly can get at the end of the charitable remainder trust. Now, how do you give a charitable remainder trust? The donor actually creates a charitable remainder trust which is a legal entity. There is a trust document. The trust has its own federal identification number. And so, you create this legal entity, and then irrevocably transfer assets into it. And then the trustee oversees the assets in the trust and the charity can serve as a trustee. This is a little bit more complex than the other vehicle just because you are creating a legal entity, and you're transferring assets into that legal entity. And therefore, it's a little bit more involved than a charitable gift annuity which is a two-page contract with a charity, or some of the other vehicles like a bequest, a charitable bequest, or something like that.
