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?

   A donor receives many financial benefits by creating and funding a charitable remainder trust:
   

   1. Tax-Free Asset Conversion

   The charitable remainder trust is unique in its ability to sell appreciated assets free from the erosion of capital gains tax, and then provide the Trustor or others with an income stream. Asset conversion is the most visible financial advantage of using a charitable remainder trust.
   

   2. Current Income Tax Deduction

   Like other charitable contributions, a gift to a charitable remainder trust can provide the Trustor with a current income tax charitable deduction. The deduction can be used to offset all forms of income.

    3. Increased Cash Flow

   An individual may own a highly-appreciated asset that generates little or no income. The owner has considered selling it, but is reluctant to do so because federal capital gains tax would consume 15% of its value and permanently reduce all future cash flow, which that tax could have produced.

    Having the ability to sell low-income producing appreciated assets free from the erosion of capital gain taxes enables the charitable remainder trust to generate more cash flow for the trust’s income beneficiaries.

    

   4. Asset Diversification and Risk Reduction

   Studies in the securities markets demonstrate that a lack of adequate diversification increases risk with no corresponding increase in return. Furthermore, having all of one's eggs in one basket often means those eggs are highly appreciated. Therefore, repositioning an asset may be available only at a substantial tax cost. The tax cost of selling assets with a zero cost basis is analogous to a 15% drop in the Dow Jones Industrial Average. The charitable remainder trust can recover the benefits of cost-effective asset diversification.
   

   5. Lifetime Cash Flow Planning

   With careful design and investment management, the charitable remainder trust can defer income for later distribution, if desired. This feature enables rapid accumulation of cash flow for retirement planning or for intermittent financial needs that may occur along the way. Cash flow deferral can also enhance the value of the ultimate charitable gift.
   

   6. Retirement Planning and Asset Management

   Among other things, retirement denotes reduction of management responsibilities. This may be true not only in the work place, but also with personal assets. A 10-unit apartment complex carries greater personal management responsibilities than does clipping coupons. Asset conversion for relief of management responsibilities can be a strong lifestyle motivator. The charitable remainder trust not only provides the means to dispose of management intensive assets, it also supplies a mechanism to provide professional asset management during a person's later years when it may be most needed or desired.

    7. Gift and Estate Tax Planning

   The charitable remainder trust offers the individual an effective alternative to the payment of gift and estate taxes. Amounts transferred to a properly structured charitable remainder trust are not generally subject to gift or estate taxes. The combination of avoiding capital gains, gift and estate taxes can be very compelling for those who wish to benefit the charity.

    In addition to the gift and estate tax savings generated by the trust itself, the cash flow created by the charitable remainder trust can be coordinated with other estate planning techniques. The most common combination involves gifts of cash from a Trustor to an irrevocable trust or directly to family members for the purchase of insurance on the life of the Trustor. Commonly referred to as wealth replacement, the concept often enables Trustors to provide a significant legacy to charity without disinheriting their heirs.
   

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?
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?