Charitable Remainder Unitrusts: FAQs

Who can serve as trustee of my unitrust?

In working with your team of professional advisors, a number of choices are available as to who would be the best trustee for you. Please contact us to discuss this further.

How would the assets in my unitrust be invested?

If the assets in the trust are liquid such as cash or securities, typically a unitrust is invested in a balanced portfolio that is designed to produce both income and growth over the term of the trust. If the trust assets are primarily non-liquid assets such as real estate or personal property, the trust may be held for growth in capital appreciation rather than current income. At some later date, the non-liquid assets could be sold (avoiding capital gains taxes) to be re-invested to produce income for the income beneficiaries.

Is it better to give cash or appreciated securities?

Gifts of cash or appreciated property yield the same result for tax deduction purposes. However, gifts of appreciated property have the added value of avoiding capital gains taxes.

How will income from my unitrust be taxed?

Your income will be taxed according to the type of investments and payout rate of the trust. You will usually pay tax at the ordinary income level on any ordinary income that is distributed, up to your full payment. The rest of your income will be taxed at the next lowest rate, usually as capital gains, then as tax-free return of principal.

Can I give real estate or other property to a unitrust?

In most cases, yes. The value of the trust principal will be determined by a qualified appraisal of the property. However, real estate or other property may not be producing income and thus the income beneficiaries may receive no or very little income until these assets are sold and re-invested to produce income.

Can I include my children as income beneficiaries?

It depends on the age(s) of any children you name as income beneficiaries. Our interest in the trust must be at least 10% of the value of the assets donated to the trust. This interest is calculated using the life expectancies of the income beneficiaries. Thus, the younger your children, the longer their life expectancy, and the smaller will be the charitable remainder value. Even younger adult children may disqualify the trust.

What are the tax deduction implications of my charitable remainder unitrust?

A charitable remainder unitrust is a powerful tool that can save you income, capital gain, estate and inheritance taxes depending on your circumstances and state of domicile. A qualified advisor is crucial to assist you in maximizing these benefits.