If you want to set up an ongoing income stream for yourself while you simultaneously take steps to provide for your favorite charity, you may want to consider creating a charitable remainder unitrust.
With these trusts, you establish a term during which you will receive annual annuity payments that must equal at least 5% and not more than 50% of the fair market value of the trust.
When you are establishing the trust you name a charitable beneficiary who would benefit from the trust after its expiration. At that time at least 10% of the fair market value of the funds conveyed into the trust must remain for the benefit of the charity.
The term of the charitable remainder unitrust can be for the rest of your life and many people go this route. You can alternately set a fixed term but it cannot exceed 20 years.
If you are concerned about the estate tax, you would be lessening your burden by taking funds that would otherwise be a part of your estate and placing them into a charitable remainder unitrust.
The grantor of the trust may also take a charitable deduction upon funding the vehicle. The allowable deduction is calculated based on some rather complex IRS rules governing charitable remainder unitrusts.
Those who convey appreciated securities into a CRUT have some appealing opportunities. If you sell the securities yourself you must pay capital gains tax on the entirety of the gain.
However, if you establish a charitable remainder unitrust, you could have the trust sell off the securities, and the capital gains tax would be imposed slowly over the rest of your life or over the fixed term of the trust.
Paul A. Kraft, Estate Planning Attorney
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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