Adding a “FLIP” to a “CRUT”
A Charitable Remainder Trust (“CRT”) allows the creators to gift assets to a charitable organization of their choice while retaining the right to receive the income from the trust assets for life or a period of years. At the death of the creators, the trust is terminated and the charitable organization will receive the remainder of the trust assets.
An advantage of a CRT can be that the trust may sell appreciated assets (i.e., like stock) without capital gains to pay required yearly payments to the creators.
A Charitable Remainder Unitrust (“CRUT”) is a type of a CRT. With a CRUT, the creators during their lifetime are paid a fixed percentage (5% or more) of the annual net fair market value of the trust asset. Unless otherwise provided, the payment of the CRUT amount commences immediately at the time of the Trust creation.
A CRUT may include a “flip” provision which can provide that for a designated period of time the CRUT pay nothing, or some amount less than the designated CRUT percentage, to the creators. A “flip” provision might be included where the creators are in a high tax bracket and wish to defer receipt of CRUT income for some period of years. Once the designated period concludes, the Unitrust is then “flipped” into a standard Unitrust with the fixed percentage pay out every year.
Careful planning is crucial to the success of any CRT including a CRUT. Important considerations include the choice of the set percentage for the Unitrust, the length of the trust, the selection of trustees and charitable beneficiaries. In addition, cooperation from your financial advisor is necessary to obtain adequate and complete information.
Here at Chauvel & Glatt, we will speak with your financial advisor to find the best fit for your needs. To learn how our attorneys can assist you with your estate planning or other legal needs, contact us today.