Definition
The term charitable remainder unitrust refers to an estate planning tool that first provides variable income to a beneficiary, eventually providing the remaining assets to a second beneficiary. The near and long term beneficiary of a charitable remainder unitrust trust is the inverse of a charitable lead trust.
Explanation
A charitable remainder unitrust (CRUT) is an irrevocable trust that initially provides a variable income stream to one or more beneficiaries, which are typically the donor or members of their immediate family. Eventually, the remaining assets are provided to an alternate beneficiary, which is a charitable organization. CRUTs are an estate planning tool oftentimes used to donate money to a college or university.
CRUTs are one of two types of charitable remainder trusts, the other being charitable remainder annuity trusts, or CRAT. The difference between these two estate planning tools is important to understand:
Charitable Remainder Annuity Trust: also referred to as a CRAT, this type of trust provides the initial beneficiary with a source of income that is fixed and determined when the trust is established.
Charitable Remainder Unitrust: also referred to as a CRUT, this type of trust provides the initial beneficiary with a variable source of income, which is a percentage of the trust's corpus and determined annually. CRUTs also allow the donor to make additional contributions to the trust.
In both CRATs and CRUTs, the assets remaining in the trust when the beneficiary passes away are distributed to the charity. Universities and large not-for-profit organizations typically offer information as to setting up a charitable remainder trust. The benefits of this arrangement include: a source of variable income to the donor (who is oftentimes the initial beneficiary), an immediate income tax deduction, no capital gains on highly-appreciated assets placed into the trust, and the reduction or elimination of estate taxes.
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