Frequently Asked Questions

1. What is a Charitable Remainder Unitrust?
2. What Formats are available for Charitable Remainder Unitrusts?
3. What are some possible, personal financial benefits for creating a Charitable Remainder Trust?
4. Who are the Candidates for a Charitable Remainder Trust?
5. How is the income tax charitable deduction calculated for a gift to a Charitable Remainder Trust?
6. What are the gift and estate tax consequences of retaining an income interest in a Charitable Remainder Trust?
7. What tax and information returns are required after a Charitable Remainder Trust is created?
8. What are the Annual Valuation Rules for Charitable Remainder Unitrusts? and Why are the Annual Valuation Rules Important?
9. What is a Charitable Remainder Annuity Trust?

10. What Factors Should I Consider When Choosing a Payout Format for my Charitable Remainder Trust?

    The choice of Charitable Remainder Annuity Trust or Charitable Remainder Unitrust format depends upon a thorough analysis of a number of factors, including: 

    • The type and tax structure of assets funding the trust,
    • The age and investment temperament of the income recipients,
    • The recipient's income needs,
    • The Trustor’s goals regarding the size of the ultimate charitable gift
    • Income goals and risk tolerance, and
    • Liquidity of funding asset

     An often-overlooked consideration in the choice of payout format is the liquidity of the funding asset. Suppose a Trustor funds a charitable remainder annuity trust with an apartment complex with intent of an immediate sale. The current net rents are sufficient to make the annuity payments. However, what if unforeseen additional cash requirements arise prior to sale? What if the complex is overrun with 17-year locusts and all the tenants move out? Can the Trustor make additional contributions to an annuity trust? No. Additional contributions to annuity trusts are prohibited. Can the trustee borrow the money? Yes; however, the trust might have acquisition indebtedness or unrelated debt-financed income and lose its tax-exempt status for that year. Accordingly, all income (including capital gain upon the sale of trust assets) could be taxable.

    The consequences of not making a distribution may, however, be more severe. The regulations provide that the unitrust or annuity amount is included in the gross income to the recipient in the year it is required to be distributed even though no distribution is made until after the close of the tax year of the trust. Such a deemed distribution results in phantom income to the income recipient. A failure to actually make a required distribution may create self-dealing, unrelated business income and/or the disqualification of the trust.

    While a charitable remainder unitrust can receive additional contributions from a Trustor and can also contain a net income provision, the governing instrument of a charitable remainder annuity trust must provide that no additional contributions may be made after the initial contribution. Further, the net income provision is unavailable to an annuity trust.

    Illiquid or non-income-producing property is most suitably transferred to a charitable remainder unitrust containing a net income provision or a standard unitrust to which the Trustor is prepared to make additional contributions, if needed.

11. How do I select a measuring term for my Charitable Remainder Trust?
12. What are some methods of income deferral within a Flip Charitable Remainder Unitrust (Flip-CRUT) or a Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT)?
13. What is a Flip Charitable Remainder Unitrust (Flip-CRUT)?
14. What are the Typical Responsibilities of a Trustee of a Charitable Remainder Trust?
15. What is an “Independent” Special Trustee (IST)? When is an IST used in Charitable Remainder Trust Planning?