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24 | on the mountain winter/spring 2012
Advantages of the unitrust:
•
If an individual creates a unitrust while alive, s/he receives a
charitable deduction when the trust is funded on his/her income
tax return for that year. This is calculated by the present value of
the remainder interest that passes to charity.
•
The grantor may add to the trust at a later date if initially
there may not have been enough money to fund it fully to their
liking. They may also want to spread the charitable deduction
over a period of a few years.
•
If the grantor funds the trust with appreciated assets s/he may
defer the capital gains. It is possible, but unlikely, to avoid taxes
on the capital gains with the interest rates and dividends being
so low. One is not taxed with the capital gains until the principal
of the trust needs to be used. If the income is insufficient for the
year or the part carried forward to the principal from prior years,
then the beneficiary would be taxed on part of the gain.
•
The beneficiary is not taxed on the income of the trust until it
is paid.
Requirements for a unitrust include:
•
It is measured by the beneficiary’s life or no more than a term
of 20 years.
•
The minimum payout for the trust is five percent and may not
exceed fifty percent.
•
In order for the IRS to make sure the trust is truly for charity,
the present value of the remainder share (charity) must be equal
to a minimum of ten percent at the inception of the funding of
the trust. An individual may add to the corpus at a later date if
they desire.
•
The trust must be revalued each year so the trustee knows
what the payout will be.
Differences occur if it is a testamentary trust (through the will).
Since it is based on life expectancy, one will not know the age of
the beneficiary until after the “grantor’s” death. The draftsman
may want to include some sort of formula clause. To fulfill the
ten percent rule, the trustee may have to amend the trust. If it
does not comply with the law, the trust may have to be collapsed.
This is the second in a series of articles on how to make deferred charitable gifts
to The Storm King School and at the same time, decrease your tax burden. This
article reviews charitable remainder trusts. Trusts can be complicated and may
contain many different provisions to fit each person’s need. There are two varia-
tions of charitable remainder trusts: the unitrusts (CRUTs) and annuity trusts
(CRATs). Each may have tax advantages to you. This article focuses on unitrusts.
By Ken Stuart ’65
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