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Charitable Remainder Unitrust
With a charitable remainder unitrust the income payout is a fixed percentage of the fair market value of the assets in the trust as determined each year. The payout percentage must be at least 5% and no more than 50%. The higher the annual payout percentage the lower the charitable deduction. Unitrusts can be established through a will. These are known as testamentary unitrusts.
Types of Charitable Remainder Unitrusts
- Straight (standard) unitrust - annually pays stated percentage of fair market value.
- Net income only (seldom used) � trust distributes annually the lesser of the stated unitrust payout rate or the net income of the trust.
- Net income makeup � trust distributes annually the lesser of the stated payout rate or the trust�s income. However, if the trust does not earn sufficient income to make the unitrust payment, it can make up the shortage in the future when the trust earns more than the unitrust amount.
- Flip - starts out as a net income makeup but upon a triggering event flips to a straight unitrust. The flip occurs the first day of the taxable year after the triggering event.
Benefits of a charitable remainder unitrust
- Increased income - hedge against inflation.
- Avoidance of capital gain.
- Diversification of the investments.
- Current charitable deduction for income tax purposes.
- Possible estate tax deduction.
- Additional contributions can be made to the unitrust during donor�s lifetime.