Charitable remainder trusts offer a good amount of flexibility and can be useful for many purposes. A trust can be used to remove assets from your taxable estate and to provide you with an income stream. You may also be eligible for an immediate income tax deduction. The income stream can also be set up to provide for your children or an aging family member. This can be a very useful tool if, for whatever reason, you prefer not to leave your heirs a lump sum. You can also arrange a testamentary trust, which is created through your will, so that the trust is formed only upon your death. The following is a brief list of different types of charitable remainder trusts.
Payments can be for life, or a term of years (up to 20). Each payment is the exact same amount, regardless of the performance of the trust.
Payments can be for life, or a term of years (up to 20). For a simple unitrust, payment amounts are a percentage of the trust’s assets as valued each year. This means that each payment can vary as the value of the trust changes from year to year. If the payout rate is 5% and the trust is valued at $100,000, the payment will be $5,000. But if five years later the trust is valued at $150,000, the payment will be $7,500.
The unitrust has other options available as well:
A Net Income Unitrust pays the stated percentage or the net income of the trust, whichever is less. This is useful when the assets funding the trust won’t immediately produce income.
A Net Income Plus Makeup Unitrust is the same as the net income trust, except that those years when the payment is less than the stated percentage are “made up for” in years when net income earned by the trust exceeds that stated percentage.
A Flip Unitrust starts out as a net income trust and “flips’ to a fixed percentage trust when a “trigger event” occurs. The trigger event can be almost any event that is outside of the donor’s control ,for example, a birth or death or reaching a certain age. On the other hand, an event like retirement is within the donor’s control and thus could not be a trigger event.
The above information is offered as a service, and should not be considered legal advice. You should contact your professional adviser if you are considering a trust as part of your estate plans.