Income for life
A Charitable Remainder Unitrust provides a way to obtain
an income for life which can grow as the funds invested in
the trust grow. The unitrust provides a variable payment,
based upon a fixed rate multiplied by the current value of
the assets in the trust at the beginning of each year. If
trust assets grow, the increasing value of the trust portfolio
will result in larger annual payouts. A gift of cash or appreciated
property (e.g., stocks or real estate) is used to set
up the trust either during a donor's lifetime or through his
or her will. This trust agreement fixes a unitrust rate, and
donors or their designated beneficiaries receive regular payments
of income for life or joint lives, or for a period of time
not to exceed 20 years.
Tax benefits
When you contribute appreciated property to fund the trust,
you avoid any initial tax on the capital gain. The contributed
property is received by the trust at its fair market value,
and the unitrust rate is multiplied by this value to calculate
the initial periodic payment to the income beneficiaries.
In addition, you are entitled to a current income tax charitable
deduction based on the present value of the anticipated remainder.
Example:
Stock worth $20,000, which cost you $5,000, is contributed
to a Charitable Remainder Unitrust, which then disposes of
the stock and reinvests the proceeds. The trust is credited
with the full value of the stock and neither you nor the trust
is charged initially with income tax on the capital gain.
The trust provides income for life at a unitrust rate of,
for example 7%, providing you with payments of $1,400 the
first year ($20,000 x 7%).
Thereafter, the value of the securities is established on
the first business day of each calendar year, and the unitrust
rate is applied to this new value to establish the payment
for the current year. If for example, the trust assets had
increased in value to $25,000, the payment for the year would
be $1,750 ($25,000 x 7%).
It must be noted that in periods of investment loss, the
value of the trust will be reduced and the payments to the
beneficiary will be lower. However, over long periods of time
investments in securities have tended to increase in value.
Donors wishing a fixed payout can consider a Charitable Remainder
Annuity Trust which provides that benefit.
At a glance:
- Provides lifetime income at favorable rates
- Eliminates initial tax on capital gain for contributed
appreciated property
- Provides current income tax charitable deduction
- Enables you to avoid estate taxes on contributed assets
- Allows you to "Be There" to make a significant
contribution to the Jewish community
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