Charitable Unitrust

The Charitable Remainder Unitrust (CRT) is a special trust with Habitat for Humanity Inland Valley that pays income to individuals. After all income payments have been completed, the remaining principal amount is distributed to qualified charities such as Ability First. The person who establishes the trust selects the CRT payout rate. The major benefits of this type of trust are (i) Bypass of Capital Gains Tax when appreciated assets are used to fund the trust, (ii) Potential for increased Income,  (iii) a Charitable Income Tax Deduction, and (iv) Possible Charitable Estate Tax Deduction.

Bypassing Capital Gains

Investment assets such as real property and securities historically appreciate over time and are subject to tax on the appreciation. At times, it may be wise to sell the asset and reinvest. The CRT is an ideal reinvestment method since a it qualifies to by-pass capital gains tax when appreciated assets are sold by the trust. When the trust earns more than the required payout, the excess amount is allowed to remain in the trust and is not subject to tax. However, if trust earnings are less than the payout percent, most Unitrusts will make payments from the annual earnings and principal. Occasionally a portion of the appreciated earnings may be distributed and are taxed at the lower capital gain rates.

Increased Income

Assets held long term such as stock and real estate commonly have annual earnings between one and four percent. The CRT allows appreciated assets to be sold and reinvested while by-passing the capital gain tax. This tax savings enables a reinvestment of the net proceeds which subsequently can lead to higher income.

Income Tax Deduction

The gift to HFHIV is not distributed until all payments have been made to the income beneficiaries. Even though we do not receive a distribution for many years the government permits the donor to receive an immediate income tax deduction.  The value of the deduction is based on the amount of the contribution, ages of the income beneficiaries, and the payout rate.

Unitrust Percentage

Each trust donor may select the CRT payout rate.  The CRT payout rate is fixed and must pay at least five percent of the trust’s principal value. The value of the trust principal is re-determined each year. The CRT then pays the selected percent of the value to the beneficiaries for the next twelve months. If a trust is valued at $200,000 and payout rate is 5% the income distribution would be $10,000.

Duration of Income Payments

The donor may also select the time for which payments are to be made to a named beneficiary. This period may be for the lifetime of one or more individuals or a fixed term of one to twenty years.  The illustration below shows a trust which pays income for two lives. After the income beneficiaries have passed away, the remaining trust principal  will be distributed to HFHIV.

Trustee

Each CRT must have a trustee.  The trustee can be a commercial institution such as a bank or trust company, a charity, an individual or a combination of these three options. The trustee’s responsibility is to invest the assets, implement sales, ensure compliance with federal regulations, and file the appropriate legal information and tax forms.  Since the trust may last for many years, it is important to select a trustee in whom the donor has confidence.

How it works

1.     You transfer cash, securities or other appreciated property such as real estate into a trust.

2.     Each year, the trust pays a percentage of its value to you or to beneficiaries you name. The trust value is re-computed annually, so payments change from year to year.

3.     When the trust terminates, the remainder passes to HFHIV.

Benefits

·         You receive an immediate income tax deduction for a portion of your contribution to the Unitrust.

·         The trust pays no capital gains tax when it sells appreciated assets contributed to the trust.

·         You or your designated beneficiaries receive income for life or a term of years.

·         You can make additional gifts to the Unitrust as your circumstances allow and qualify for additional income tax deductions and increased trust payments.

·         You have the satisfaction of making a significant gift that benefits you now and HFHIV later

For more information about how you can benefit from making a gift to HFHIV using a Charitable Remainder Unitrust, please contact Eric Bunge, Director of Special Gifts, at (951) 296-3362 ext 208, or email Eric@habitativ.org

The information provided here is for illustrative purposes only and is not intended as legal advice. For legal or tax advise Habitat for Humanity Inland Valley recommends contacting your legal or tax advisor.