In a Charitable Remainder Unitrust, the payment to the beneficiary is based on a fixed percentage of the fair market value of the trust assets valued each year. The minimum percentage allowed by law is 5 percent and most trusts are established between 5 percent and 7 percent.
Payment will vary each year. The payout percentage does not change but the value of the trust does change, since it must be revalued each year. Payment each year may be ordinary income, capital-gain income, tax-exempt income or tax-free income, depending on the particular circumstances of the unitrust.
You can create a charitable remainder unitrust during your lifetime or at death through your will. The minimum amount necessary for such a trust with the American Baptist Foundation is $50,000.
An example of a Charitable Remainder Unitrust
Mr. Robinson, age 65, establishes a $100,000 single-life unitrust with a 6 percent annual payout. He funds the unitrust with appreciated securities that had a basis of $40,000 and were paying 4 percent.
The capital gains tax on the gain of $60,000 would be avoided and the trust would be established for $100,000. He would receive a charitable deduction of $43,001 for income tax purposes.
In a standard unitrust, Mr. Robinson will receive $6,000 annually in quarterly payments ($100,000 x 6 percent). If the trust earned a net total return of 7 percent ($7,000), the additional $1,000 in earnings would be added to the corpus to make the value of the trust the second year $101,000. Mr. Robinson’s payout the second year would be $6,060 ($101,000 x 6 percent).