CHARITABLE REMAINDER UNITRUSTS
A Charitable Remainder Unitrust provides an income for life which can grow as the funds invested in the trust grow. The unitrust provides a regular payment, which may fluctuate based upon a fixed rate multiplied by the value of the assets in the trust at the beginning of each year. If trust assets grow, the increasing value of the trust portfolio will result in larger payments.
A gift of cash or appreciated property (e.g., stocks or real estate) is used to establish the trust either during a donor’s lifetime or through his or her will. This trust agreement fixes a unitrust rate, and donors or their designated beneficiaries receive regular payments of income for life or joint lives, or for a period of time not to exceed 20 years. When you contribute appreciated property to fund the trust, you avoid any initial tax on the capital gain. The contributed property is received by the trust at its fair market value, and the unitrust rate is multiplied by this value to calculate the initial periodic payment to the income beneficiaries. In addition, you are entitled to a current income tax charitable deduction based on the present value of the anticipated remainder.
AN EXAMPLE
Stock worth $20,000, which cost you $5,000, is contributed to a Charitable Remainder Unitrust, which then disposes of the stock and reinvests the proceeds. The trust is credited with the full $20,000 value of the stock and neither you nor the trust is charged initially with income tax on the capital gain. The trust provides income for life at a unitrust rate of, for example 7%, providing you with payments of $1,400 the first year ($20,000 x 7%).
Thereafter, the value of the securities is established on the first business day of each calendar year, and the unitrust rate is applied to this new value to establish the payment for the current year. For example, if the trust assets had increased in value to $25,000, the payment for the year would be $1,750 ($25,000 x 7%).
It must be noted that in periods of investment loss, the value of the trust will be reduced and the payments to the beneficiary will be lower. However, over long periods of time investments in securities have tended to increase in value. Donors wishing a fixed payout can consider a Charitable Remainder Annuity Trust which provides that benefit.
Establishing a Charitable Remainder Unitrust with the Dallas Jewish Community Foundation today will allow you to be there for your family, your community, and the Jewish people—where and whenever help is needed in the future.
AT-A-GLANCE
Provides lifetime income
Eliminates initial tax on capital gain for contributed appreciated property
Provides current income tax charitable deduction
Allows you to leave a legacy and make a significant contribution to future generations of the Jewish community
Allows you to leave a legacy and make a significant contribution to future generations of the Jewish community