Flip CRUT - Charitable Retirement Unitrust

Student walking through dogwood grove near Maxey Hall, Whitman College

The unique features of unitrusts may be customized to be more useful in retirement planning, particularly for people who are in the income earning stages of life. During a career, it is often appropriate to focus saving and allocating assets for retirement. A charitable retirement unitrust may be a great option to allow you to save for retirement and take advantage of the benefits of charitable deductions and tax efficiencies.

Unitrusts allow for beneficiary payments to be distributed as either the net income earned by the trust or as a fixed percentage of the value of the trust, revalued annually. It is possible to combine both features with the use of a "Flip Provision." Essentially, a unitrust may operate for a number of years and distribute only the net income until a future date when the trust "flips" and begins paying a fixed percentage, such as 5 percent or 6 percent. By customizing the asset allocation of the investments held by the trust, very little income could be generated during the net income phase, focusing primarily on capital appreciation. When the anticipated retirement date arrives, the trust would adjust its asset allocation to coincide with the "flip" to a fixed percentage payout. And because the unitrust is a charitable trust, any investment reallocation is completely tax free.

There are several additional financial benefits to a charitable retirement unitrust. Any contributions to the unitrust will generate current charitable income tax deductions, helping to offset current tax liabilities. The payments ultimately received from the unitrust during retirement are more tax efficient than many other sources of income; only a portion of the payment will be taxed as ordinary income. As a result of the tax efficiency, more disposable income will be available during retirement. If the contributed assets are appreciated in value, the capital gains tax will be avoided allowing the full value of the assets to work to generate retirement income. And, any assets placed in the unitrust will be removed from the donor's estate.

Ideally, a charitable retirement unitrust will be funded over time with regular installments or as your income allows. It may be advantageous to contribute assets to a unitrust when compared to an IRA, 401(k), or other retirement plan. Additionally, your income may be too high to take full advantage of IRA's or other retirement plans or you may wish to save more for your retirement than may contributed to your IRA or 401(k). The unitrust flexibility permits many options.

And, when the unitrust eventually terminates, you will provide vital support to Whitman College.

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