During the summer of 2010 there was an interesting story circulating throughout the financial community about a challenge that was issued by two of the most notable billionaires in the world. Bill Gates and Warren Buffett reached out to the richest people in the United States asking them to pledge to give away at least half of their wealth throughout their lifetimes. Buffett himself has given billions to the Bill and Melinda Gates Foundation, so he is indeed “walking the walk.”
When you are planning your estate, it is natural that you would consider the larger scope of your legacy, and this often leads people to the desire to make some type of charitable contribution. Not everyone is in a position to start a family foundation, but there are a number of other ways that you can satisfy your philanthropic urges while staying within your means. One of these is through the creation of a charitable remainder unitrust.
These trusts provide for the charity of your choice, but they also afford some benefits to the grantor. Once you fund the trust you name your charitable beneficiary and you also name a non-charitable beneficiary; most people name themselves. If you are indeed the beneficiary, you must receive distributions from the trust equaling at least 5% and no more than 50% of its fair market value annually. By creating the trust you reduce the overall value of your estate for estate tax purposes and you’re also entitled to a charitable deduction.
These distributions take place throughout the duration of the trust term, which can be for the rest of your life if this is what you choose. At the end of the term the charitable beneficiary assumes ownership of the remainder in the trust, and this amount must be at least 10% of the fair market value of the original contribution into the trust.
Charitable remainder unitrusts are a useful option for people who would like to give something back to worthwhile causes while gaining estate tax efficiency and creating an ongoing source of income.