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You're considering a lifetime gift in partnership
with the Foundation > Your planning objective is increased
income > Your preference is a variable income payout >
You want to retain flexibility in the management of your gift
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The Charitable Remainder Unitrust is the
most flexible gift plan that the Foundation offers. The unitrust
addresses multiple financial and family needs, unlocking your ability
to make a significant gift through us.
- 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. Income in excess of the unitrust amount is reinvested to maintain principal and allow for growth.
- Income can be paid for the lifetimes of the beneficiaries, or for a term of up to 20 years.
- If you fund a unitrust with appreciated securities or property, no upfront 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 below – 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 interest you retained. We can calculate
this deduction amount for your planning purposes.
- 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 the Baptist causes you designated
when you created the trust.
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
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.
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Who Should Be Trustee?
A unitrust is a separate legal entity administered
by a trustee. The Foundation can serve as trustee of your
unitrust, or You or another person or institution can serve
as trustee. We currently administer several charitable trusts.
Alternately, you may wish to follow your or your advisors'
investment strategies. Whichever option you choose, our Trust
counsel Laurie Valentine can discuss the details of establishing
the unitrust with you and your advisors.
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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 real estate 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.
The Office of Gift and Estate Planning can assist you and your advisors in considering the alternative of a net-income unitrust.
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Example
You're considering a gift for hurting children
of $250,000, but you're concerned about the capital gains
consequences of liquidating assets, and about reducing your
and your spouse's cash flow. Indeed, you're looking for increased
income, since you've committed to helping with your grandchildren's
tuition.
Your portfolio contains a small commercial
building that has grown in value and which has generated several
offers to purchase. You decide to place the building into
a flip unitrust which will pay net income until the building
is sold then the unitrust amount (5% of value of trust assets
revalued annually) to you and your wife for life. The remainder
of the unitrust will go to the Kentucky Baptist Homes for
Children.
What are your benefits?
Donors: Husband and Wife, 70 and 68
Asset contributed: Office building
Amount contributed: Fair market value $250,000
Cost basis: $125,000
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Click here to calculate the benefits a unitrust would give you.
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Comparison
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Unitrust
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Private Sale
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Amount transferred
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$250,000
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$250,000
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Capital Gains Tax (@20%):
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0
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$25,000
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Net for reinvestment
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$250,000
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$225,000
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Income rate
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5%
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5%
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First year's income
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$12,500
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$11,250
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Charitable deduction
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$102,255
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0
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Tax savings @ 35% rate
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$35,789
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0
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Total benefit, first year
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$48,289*
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$11,250
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* Unitrust payment plus tax savings from charitable deduction
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Note: The Unitrust is not the only gift plan that pays you lifetime income. Compare its benefits with those of the annuity trust and the unitrust.
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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.
Email us, complete the personal illustration form, or call us at 502-489-3533 so that we can assist you through every step of the process.
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