For many people, one of the primary estate planning objectives is going to be to do what is necessary to gain tax efficiency. There are a number of different vehicles that can be utilized, and the right combination will vary depending on the form of your assets and the specific nature of your wishes. To this end we endeavor to highlight some of the estate planning instruments that are typically utilized, and the one that we will take a look at today is the charitable remainder unitrust or CRUT.
With these trusts you name a non-charitable beneficiary as well as a charitable beneficiary. Most people who create a charitable remainder unitrust will act as the non-charitable beneficiary. As the non-charitable beneficiary you must receive annuity payments from the trust equal to at least 5% of its value and not more than 50% of its value on an annual basis. At the end of the term of the trust, the charitable beneficiary receives the remainder, and this remainder must be equal to at least 10% of the original value of the trust.
When you create the trust you are removing those assets from your estate for estate tax purposes, and this is one of the appeals of the CRUT. You also get a charitable deduction for the initial contribution based on the present value of the remainder interest.
In addition to this, the charitable remainder unitrust is a tax-free entity. So if you were to contribute assets that had appreciated significantly into the trust, the trust as a tax-free entity could sell these assets. If you had sold the assets yourself as an individual, you would’ve been subject to capital gains tax on the lump sum transaction. But when the sale is made by the trust the capital gains liability would be spread out over the duration of the trust term and the income derived from the trust would be based on the entire value of the sale of the securities.