A unitrust is a versatile plan that can serve a wide range of your financial planning needs. First, here's how you can personally benefit.
A unitrust will pay you an income each year, determined by multiplying a fixed percentage times the fair market value of the trust assets, as revalued annually. You choose the percentage at the outset.
EXAMPLE: Marjorie transfers $100,000 to a unitrust and elects to receive 8% of the fair market value of the unitrust assets each year, payable quarterly. The first year she gets $8,000 (8% of $100,000). During the year, the assets appreciate in value to $110,000, so in the upcoming 12 months Marjorie is paid $8,800 (8% of $110,000). If the value of the trust assets decreases to $90,000, Marjorie is paid $7,200 in the upcoming 12 months (8% of $90,000).
A unitrust offers a viable solution to the continuing threat of inflation. In comparison, if you rely on a fixed income, you receive the same dollar return year after year, while inflation insidiously eats away at the purchasing power of your dollars. On the other hand, the payout of a unitrust can grow along with the value of the trust's investments. Naturally, the valuation can go up or down; but over time, a well-managed unitrust offers better protection against ongoing inflation than a fixed income investment.
Unencumbered appreciated real estate can be an excellent asset to fund a charitable remainder unitrust.
Since the donor and/or other named beneficiaries will receive income from the trust during their lifetime(s) and the charity will not receive a gift until the last beneficiary dies, the charitable income tax deduction is based on the present value of the remainder interest. The charitable deductions are calculated using Treasury tables.
The donor avoids income tax on the property's appreciation. When this savings is combined with the tax savings from the charitable deduction, the result is more money available for reinvestment on behalf of the donor.
Any examples given are meant to be illustrations of the benefits of charitable vehicles available to you. This should not be construed as legal or tax accounting advice. Always consult an attorney for specific arrangements. The College can assist you in this regard.
For further information on charitable remainder unitrusts, fill out the Request for Information Form or contact Bill Heaton, Vice President of Advancement at wheaton@scco.edu or at 714.449.7464.