Charitable Remainder Trust

Unitrust or Annuity Trust

Two types of Charitable Remainder Trusts are allowed by law: the Unitrust and the Annuity Trust. They are fundamentally the same except for one significant difference: the way the amount paid to the income beneficiaries is calculated each year.

The Annuity Trust provides fixed payments, the same amount each year. The amount is set on the date of the gift. The Annuity Trust is attractive in situations where the trust will exist for a relatively short period of time. In these cases, the predictability of the fixed payments is more important than the eroding effect of inflation over the years.

Unitrust payments will vary from year to year. The amount of payment any one year is based on the value of the assets in the trust on January 1 of that year. Each January 1, the assets are revalued and multiplied by the percentage payment rate stated in the trust agreement to determine the "unitrust amount" for that year. This unitrust amount provides great flexibility to the Unitrust. A lower percentage rate Unitrust will tend to grow faster over the years, providing increasing payments to the donor in the years ahead. The opportunity for growth is the reason a Unitrust is often the recommended Charitable Remainder Trust for a donor under age 65. The growth opportunity is enhanced because the trust assets compound tax-free.

A unique feature of the Unitrust is that it can accept additional gifts. This feature is useful in order to create a "Retirement Buildup Unitrust," where additions each year build up a substantial retirement income stream.

A special case of the Unitrust is called a "Net Income Unitrust." In this case, the recipient receives the lesser of the unitrust amount or the actual income earned by the trust investments. This can be useful in the case of a Retirement Buildup Unitrust where the retirement income is to be deferred for several years, or in the case of a trust being funded with an illiquid asset such as unimproved real estate.

The great flexibility of a Unitrust allows a donor to secure very interesting benefits. You can use appreciated stock compounded tax-free to pay future college tuition of grandchildren, plus take a substantial income tax deduction in the year of your gift. This is one of many opportunities. Please call or e-mail us to discuss your particular situation.

HAVE QUESTIONS? For more information, please call Planned Giving toll free at 1-866-COV-HOUSE (That's 1-866-268-4687), or email plannedgiving@covenanthouse.org.

Sara's Story

Sara was deeply devoted to her mother. But when Sara was 14 – just starting to really grow up – her mother was killed. Sara did have a father, and you might sigh in relief for that. But the sad truth is that he failed her – when she needed him most. Instead of more love, she got more anger from him, until they were constantly at war with each other. Sara tried to escape the grief and pain through alcohol and drugs. They didn’t help, of course, and her relationship with her father went even further downhill.

In her own words – I had to get out. So I went to live with my sister. But the drugs and pain came with me. So I had to leave there, too. I was lost, with a terrible addiction – no home, no job, no family.

Read Sara's story.