A charitable remainder unitrust provides an income based on a percentage of the fair market value of the trust assets as determined annually. Typically, a unitrust will be revalued at the start of each calendar year, and if the value of the trust principal increases, so does your income. Because unitrust payments fluctuate with the market, this form of life income gift may provide a hedge against inflation. You can establish a unitrust at Seton with a gift $100,000 or more.
Unitrusts offer many opportunities to address specific financial goals and situations, and Seton can help you and your financial advisors explore options. You might establish a unitrust for a term of years to assist in funding the cost of college. You might find a unitrust to be an attractive way to convert appreciated, low-yielding assets into a high-yielding diversified portfolio without incurring capital gains tax.
When you establish a charitable remainder unitrust, you receive an immediate income tax deduction for a portion of the gift, and, if you should need it, this deduction can be used over as many as six consecutive tax years. If your gift is funded with appreciated assets, you can also reduce your capital gains liability.
Example:
Mr. Jones, age 68, transfers appreciated securities that cost him $100,000 and are now worth $500,000 to a unitrust with an annual payout rate of 6%. He will receive payments for life. When he dies, the unitrust assets will support charity care at Seton. Mr. Jones’s charitable deduction is about $217,840, and it can be used over six years. Under the provisions of the trust agreement, Mr. Jones's first annual payment will be $30,000, a significant portion of which may be taxed at the lower 15% capital gains tax rate. In year two, assuming an 7.82% total annual investment return, the trust will grow at 1.82% after the 6% payout and avoid probate. In the second year, the trust will have a principal balance of $509,100, and the payment will be $30,546. Assuming the same 7.82% total return, the payment in year three will be about $31,102, and so on for life. Mr. Jones may also completely avoid the tax on the gain he would have incurred had he sold the property instead of donating it.