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What is a Charitable Remainder Unitrust?

Jim B.
Jim B.

A charitable remainder unitrust is an arrangement by which wealthy individuals can provide for themselves and their beneficiaries while also making a contribution to charity. The donor of the wealth chooses a trustee to take control of those assets endowed to the trust and administer the wealth within it to beneficiaries. Wealth within the charitable remainder unitrust is reinvested, and the donor and his beneficiaries receive a portion of the income based on a percentage rate determined at the outset of the agreement. At some point, usually after the death of the donor and all beneficiaries, the wealth remaining in the trust passes to the charity of the donor's choice.

Wealthy individuals often use trusts as a way of protecting their wealth for themselves and their beneficiaries and of receiving significant tax relief. At the same time, many of these wealthy individuals also wish for their wealth to benefit society long after their death in the form of charitable contributions. A charitable remainder unitrust is an arrangement that manages all of these goals thanks to its unique versatility.

Man climbing a rope
Man climbing a rope

One of the benefits of a charitable remainder unitrust is that the donor gets to choose the terms by which the trust will be administered. The donor can choose the trustee, the beneficiaries, and the charitable organization that will inherit the remainder of the trust. In addition, the donor can choose the percentage of the trust that she or her beneficiaries will receive in each installment. She can also choose the timing of those installments.

The trustee takes the assets within the trust and must then assess them for their fair value and then sell any physical assets to reduce the trust to capital. At that point, the trustee is also in charge of investing the capital within. Ideally, the trustee can generate enough income from the investments to distribute to the donor or the beneficiaries so that the initial principal within the trust remains intact. According to the terms of the charitable remainder unitrust, the trustee also distributes the wealth.

Once the terms of the trust have been exhausted, which can come at the death of the donor, at the death of certain beneficiaries, or at some other time determined by the trust, the remaining assets will be distributed to the charity of the donor's choice. If the trustee did a good job managing the funds and investing them, this remainder can be a sizable amount. In this way, a charitable remainder unitrust allows the donor's wealth to not only benefit himself and his beneficiaries, but to also provide a philanthropic benefit after his death.

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