The Best Kept Secrets of a Charitable Remainder Unitrust
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A Charitable Remainder Unitrust (CRUT) is put in place to provide an income to a non-charitable beneficiary and at the same time move the rest of the 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.
The donor could also make sure that if he or she died before a spouse that the spouse would collect income from the donated property for life. The donor would collect expenses based on a set percentage of the fair market value of the assets placed in trust. Every year the assets would be revalued.
Further Contributions
The CRUT differs from the Charitable Remainder Annuity Trust (CRAT) because it may continue to collect assets in later years and the stream paid out must be a minimum of 5% of the yearly reappraised value of the corpus.
Accordingly, the CRAT disburses a fixed sum of income that never differs in amount, while the CRUT, depending on the reappraised value of the corpus and accumulated income, may issue greater or lesser amounts of income.
Appreciation
Each year the size of the payment to the non-charitable beneficiary can increase if the rate of the corpus and income continues to appreciate. Because of this, the CRUT is a valuable tool to fight inflation. If, over a period of time, the value of the assets continues to depreciate, the CRUT may in the end pay less income to the non-charitable beneficiary than was originally planned.
If a grantor requests to guarantee a yearly increase in the value of the income payment to the non-charitable beneficiary, the grantor should finance the corpus of such a trust with assets that pay a guaranteed rate of return.
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.
The donor could also make sure that if he or she died before a spouse that the spouse would collect income from the donated property for life. The donor would collect expenses based on a set percentage of the fair market value of the assets placed in trust. Every year the assets would be revalued.
Further Contributions
The CRUT differs from the Charitable Remainder Annuity Trust (CRAT) because it may continue to collect assets in later years and the stream paid out must be a minimum of 5% of the yearly reappraised value of the corpus.
Accordingly, the CRAT disburses a fixed sum of income that never differs in amount, while the CRUT, depending on the reappraised value of the corpus and accumulated income, may issue greater or lesser amounts of income.
Appreciation
Each year the size of the payment to the non-charitable beneficiary can increase if the rate of the corpus and income continues to appreciate. Because of this, the CRUT is a valuable tool to fight inflation. If, over a period of time, the value of the assets continues to depreciate, the CRUT may in the end pay less income to the non-charitable beneficiary than was originally planned.
If a grantor requests to guarantee a yearly increase in the value of the income payment to the non-charitable beneficiary, the grantor should finance the corpus of such a trust with assets that pay a guaranteed rate of return.
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.
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