The Advantages of a Charitable Remainder Unitrust
A Charitable Remainder Unitrust (CRUT) was created to provide an income to a non-charitable beneficiary while simultaneously transferring the remainder interest to a qualified charity.
The donor would irreversibly transfer securities or property to a trustee. The trustee would then pay the donor (or other income beneficiary) income from the property for life.
A CRUT also guarantees that if the donor dies before their spouse they could receive income from the donated property of life. The donor would be compensated based on a fixed percentage of the fair market value of the assets placed in the trust. The assets would be revalued annually.
Other Contributions
The CRUT may receive assets in later years, unlike the Charitable Remainder Annuity Trust (CRAT) which does not. The CRUT also varies from a CRAT since the stream paid out by the CRUT trust must be a minimum of 5% of the annual reappraised value of the corpus.
Thus, while the CRAT pays a fixed sum of income that never varies in amount, the CRUT may distribute greater or lesser amounts of income, depending on the reappraised value of the corpus and accumulated income.
Appreciation
If the value of the corpus and income continues to appreciate, the amount of the payment to the non-charitable beneficiary may increase with each succeeding year. This makes the CRUT an effective means of fighting inflation. If, however, the value of the assets continues to depreciate over a period of years, the CRUT may actually pay less income to the non-charitable beneficiary than was originally intended.
If a grantor wishes to ensure an annual increase in the value of the income payment to the non-charitable beneficiary, the grantor should fund the corpus of such a trust with assets that pay a guaranteed rate of return, such as U.S. Treasury notes that pay interest tied to a specific rate of return. - 23314
The donor would irreversibly transfer securities or property to a trustee. The trustee would then pay the donor (or other income beneficiary) income from the property for life.
A CRUT also guarantees that if the donor dies before their spouse they could receive income from the donated property of life. The donor would be compensated based on a fixed percentage of the fair market value of the assets placed in the trust. The assets would be revalued annually.
Other Contributions
The CRUT may receive assets in later years, unlike the Charitable Remainder Annuity Trust (CRAT) which does not. The CRUT also varies from a CRAT since the stream paid out by the CRUT trust must be a minimum of 5% of the annual reappraised value of the corpus.
Thus, while the CRAT pays a fixed sum of income that never varies in amount, the CRUT may distribute greater or lesser amounts of income, depending on the reappraised value of the corpus and accumulated income.
Appreciation
If the value of the corpus and income continues to appreciate, the amount of the payment to the non-charitable beneficiary may increase with each succeeding year. This makes the CRUT an effective means of fighting inflation. If, however, the value of the assets continues to depreciate over a period of years, the CRUT may actually pay less income to the non-charitable beneficiary than was originally intended.
If a grantor wishes to ensure an annual increase in the value of the income payment to the non-charitable beneficiary, the grantor should fund the corpus of such a trust with assets that pay a guaranteed rate of return, such as U.S. Treasury notes that pay interest tied to a specific rate of return. - 23314
About the Author:
Hank Brock is president of Brock and Associates, LLC, a firm specializing in financial planning, retirement, estate, and tax planning. Visit him online for further information on CRUTs, CRATs, and other financial planning topics.
posted by Mr. Forex at
1:33 AM
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