Charitable Remainder Unitrust

Charitable Remainder Unitrust

A charitable remainder unitrust gives you flexibility to accommodate a variety of assets, various financial goals, and the possibility of increasing trust payments over the trust term. If you wish to benefit from market upswings, but you don’t mind weathering market downturns, the unitrust may provide a perfect way to meet your goals. If you prefer a fixed annual payment stream, you should consider a charitable remainder annuity trust or a charitable gift annuity.

Charitable remainder unitrust illustration

How It Works

  • You contribute cash or securities to an irrevocable trust that pays its beneficiaries a fixed percentage of the floating annual value of the trust.
  • Trust payments can be paid to you and your beneficiaries for life, for a term of up to 20 years, or for a combination of both.
  • When your unitrust terminates – at the death of the last beneficiary or at the end of the trust term – the remaining balance will be distributed to the Law School Foundation.
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  • You receive an immediate income tax deduction for a portion of your contribution to the unitrust.
  • You defer or avoid capital gains tax on any appreciated assets you contribute.
  • You or your designated beneficiaries receive income for life or a term of years.
  • You can make additional gifts to the trust over time and qualify for additional tax deductions.
  • You have the satisfaction of making a significant gift that benefits you now and the Law School later.

Frequently Asked Questions

What are the advantages of a unitrust?

  • You will be eligible to claim a charitable income tax deduction when you create a charitable remainder unitrust. Your available deduction will be based on the full fair market value of the assets you contributed, reduced by the present value of the unitrust interest you retained.
  • You may make additional contributions to your unitrust in future years and be eligible for additional income tax deductions.
  • When the trust increases in value from year to year, your unitrust payments will increase accordingly. If the trust declines in value, however, your payments will likewise decline.
  • If you contribute at least $50,000 to fund your trust, you can appoint the Rector and Visitors of the University of Virginia as trustee, and the trust will be invested through the University’s endowment.
  • You will defer capital gains tax if you fund your unitrust with appreciated property.
    • If you choose a trustee other than the Rector and Visitors of the University of Virginia, the inherent capital gains from those assets may be distributed to you as part of your annual trust payments from time to time in accordance with a “tiered” taxation regime dictated by federal tax law.
    • If the Rector and Visitors of the University of Virginia serves as trustee of your trust, your trust will be invested through units of the University’s endowment, and the income tax characteristics of your unitrust payments will not follow the federal “tiered” taxation regime. Click here for a brief explanation of what that means for your trust.

Is there a minimum contribution to establish a charitable remainder unitrust?

Federal tax law does not set a specific minimum contribution required to establish a charitable remainder unitrust. For a minimum contribution of $50,000, the Rector and Visitors of the University of Virginia can serve as trustee of your trust.

“Flip” unitrusts: for real estate or targeted income date

If you want to fund a trust with a gift of real estate (or other hard-to-sell assets), you might want to consider establishing a special kind of charitable unitrust known as a “Flip” unitrust. Until the trust sells the real estate, your annual payments will comprise only the net income of the trust. After the sale (or “Flip” event), you will begin receiving annual unitrust payments as described above.

A “Flip” trust may also be structured to begin making unitrust payments on a particular date or after an event that you define in your trust. For example, you may wish to begin receiving unitrust payments coincident with your retirement or when a child’s college expenses become due. Until the defined triggering date, the trust will pay only net income, which allows the trust to accumulate growth more quickly in the early years of the trust term.

Planning Points

  • We will be pleased to talk with you and your advisors further about unitrust alternatives that will best meet your goals.

Investment in the University of Virginia’s Endowment

The University of Virginia in 2007 obtained a “Private Letter Ruling” (PLR) from the Internal Revenue Service permitting the University to invest its charitable remainder trusts in units of the University’s endowment. The endowment is managed by the University of Virginia Investment Management Company (UVIMCO), a 501(c)(3) entity affiliated with the University and organized to manage its endowment. The University sought the PLR so that its trusts would benefit from the endowment’s full investment performance, which has historically been markedly higher than that achieved when charitable trust investments were restricted within the endowment.

However, in exchange for what we believe will be significantly better investment returns over time, the IRS ruled that the unitrust payments to you or your designated beneficiaries will carry out income differently than as prescribed in the Internal Revenue Code for charitable remainder trusts. What this means is that each unitrust payment may carry out more ordinary income (which is taxed at a higher rate than capital gains, for example) than it would if the trust were invested in traditional charitable trust investment pools.

For More Information

Email us, or call us at 877-307-0158 (toll free) or (434) 924-4154 (direct) so that we may answer your questions and help you through the process.

The materials provided in this website and the examples contained herein are for illustration purposes only and are not intended as legal or tax advice. We encourage you to consult your own legal and tax advisor.