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. Here's how a unitrust works:
- The unitrust makes payments to the beneficiaries for their lifetimes, for a term of up to 20 years or for a combination of both.
- Beneficiaries receive a fixed percentage of the value of the trust's principal, which is revalued annually.
- Income and capital growth in excess of trust payments to beneficiaries are reinvested to maintain principal and allow for tax-free growth of the trust.
- 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 Nature Conservancy for the use you designated when you created the trust.
What are the tax advantages of a unitrust?
- If you fund a unitrust with appreciated securities or real estate, no up–front capital gains tax is payable by you or your trust. You can contribute appreciated but low–yielding assets and diversify tax-free, putting the full value of your gift to work generating higher trust payments.
- Similarly, no capital gains tax is applied to the growth of a unitrust's principal.
- You also receive a charitable income tax 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 estimated value of payments beneficiaries will recieve from the trust. We can calculate this deduction amount for your planning purposes.
Planning tip – grow your gift and your income
The standard unitrust is designed to pay you income as a fixed percentage of gradually increasing principal. Payments from a standard unitrust begin as soon as the trust is created and funded. Alternatively, it is possible to establish a trust now, secure an immediate tax deduction, but receive most of the trust payments beginning at a future date. Called a "FLIP" 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 until a future time, for example, at their retirement. This can be an attractive tool for younger donors wishing to build a supplementary retirement fund that will grow tax–free, then distribute payments in later years when they need it most.
How do you create a charitable remainder unitrust?
If you are interested in learning more about creating a charitable remainder unitrust, please contact a Nature Conservancy gift planner. You should also be advised by your own 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. The Trustee can be The Nature Conservancy, yourself, or other trusted individuals or entities of your choosing. See "who should trustee."
Who Should Trustee?
A unitrust is a separate legal entity administered by a trustee. The Nature Conservancy can serve as trustee of your unitrust. We have extensive experience gained over the last 25 years managing many hundreds of unitrusts. Currently, we administer a significant portfolio of charitable trusts, in partnership with carefully chosen outside trust administrators. We are proud of the investment returns our trusts have earned, and of the low fees we have negotiated for our trusts. Trust fees are generally deducted from trust assets.
Alternatively, you or a financial advisor or institution of your choosing can serve as trustee. This is most often done when donors wish to follow their or their advisors' investment strategies. Whichever option you choose, we can share sample trust forms and discuss the details of establishing the unitrust with you and your advisors.
A charitable remainder unitrust is for you if ...
- You want to make a major gift to The Nature Conservancy while retaining or increasing your income from the assets you contribute. Unitrusts are generally funded with at least $50,000 in cash or stock or $100,000 in real estate.
- You hold appreciated assets — securities, real estate, or a business — and want to avoid the capital gains cost of a sale.
- You want the payments from your gift to be able to grow over time rather than be fixed. In order to provide a hedge against inflation.
- You desire flexibility in the operation of your gift.
You and your spouse, ages 70 and 68, own a small commercial building worth around $250,000, double what you paid for it. You are concerned about the consequences of liqudating this asset and reinvesting the proceeds, since they would be reduced by the capital gains taxes payable. You've always wanted to make a meaningful gift to The Nature Conservancy, and after consultation with Conservancy Gift Planners and your own advisors, you decide to place the building into a unitrust that will pay 5% of the trust's value for your lifetime (initially from the rental income from the building, then a percentage of the proceeds of its sale) to the two of you. The remainder of the unitrust will go to The Nature Conservancy.
What are your benefits?
|Value of Property||$250,000||$250,000|
|Capital Gains Tax (@15%)||$0||$18,750|
|Net for reinvestment (before other sales costs)||$250,00||$231,250|
|Tax savings @ 33% rate||$33,660||$0|
Unitrust payment plus tax savings from charitable deduction
*This example is based on a factor that changes monthly. Contact our office for a personal illustration based on the latest rates.