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Minnewaska Home Development Foundation
Unitrusts
Get The Most From Your Estate Plan
Unitrusts Work For You!
Our donors support MHDP because of a spirit of generosity and concern for humanity. Nevertheless,
charitable contributions can often be combined with a donor's personal goals and objectives
for themselves and their families. Charitable remainder Unitrusts are an ideal way to achieve
complementary objectives.
What Is A Unitrust?
A charitable remainder Unitrust is an arrangement into which an individual irrevocably places
cash, securities or other property, but retains a (generally) lifetime variable income. When
the trust ends, the property placed in the trust passes to MHDF, similarly to a will bequest.
But because the bequest has been "accelerated" by means of the trust, tax law allows a
substantial income tax charitable deduction. Depending on how the Unitrust is set up, there are
many other possible advantages:
- Increased family income
- Avoidance of capital gains tax
- Favorable income taxation
- Deferred Income (generally until retirement when the taxpayer is in a lower tax bracket)
- Savings on federal estate tax
- Avoidance of gift tax
- Professional management of funds
- An inflation hedge
- Reduction of estate settlement costs
- Philanthropic support for MHDF
What Income Will I Receive From My Unitrust?
The Unitrust must annually distribute a specific percentage (minimum 5%) of the value of the
property in trust. The payout will increase if the value of the trust increases, but decreases
are also possible. Most Unitrusts distribute distribute between 6% and 7% annually.
What Kind of a Deduction Can I Take?
The dollar amount of the deduction generally depends on both the age(s) of the person(s)
receiving the payments and the amount of the benefits received each year. For example, a trust
paying a 6% income to a person age 70 will generate a deduction of approximately 48% of the
amount placed in trust. MHDF can provide exact figures specific to any financial situation.
|
Deduction for Gift
of $100,000 to
Unitrust for Life of Beneficiary
|
|
Age of
Beneficiary |
5% Annual
Payout |
6% Annual
Payout |
7% Annual
Payout
|
|
60
65
70
75
80
|
$40,218
46,857
53,947
61,165
68,438
|
$34,335
41,006
48,322
55,947
63,819
|
$29,547
36,099
43,467
51,322
59,623
|
What Assets Should Be Put In The Unitrust?
A Unitrust can certainly be funded with cash. If highly-appreciated assets (such as
securities, debt-free real estate or even collectibles) are transferred into the Unitrust, the
trustee can sell and assets and reinvest the proceeds completely free of all capital gains taxes.
Unitrusts - A Golden Opportunity
Unitrusts can help individuals achieve important personal and financial goals. The following
examples illustrate various situations in which Unitrust provide a sound solution:
- Restructure a portfolio. An investor wants to realize stock market gains, increase bond
portfolio levels, and avoid high capital gains taxes on the transaction. Solution:
Transfer highly-appreciated long-term stock (owned more than one year) to a Unitrust with
eventual benefit passing to MHDF. The trustee will sell the stock, avoid all capital gains
taxes and provide the investor with a lifetime income - at a level higher than that offered
by current dividends. Plus, the donor will receive a charitable deduction.
- Relieve management burdens. An owner of several apartments and an office building
wishes to be relieved of landlord responsibilities. Solution: Transfer the rental
property to a Unitrust (which will take on the property management), reduce income and capital gains
taxes, and generate an income higher than before.
- Provide for college. An individual wants to make a sizable charitable gift to MHDF but also
wishes to create a college fund for three grandchildren, all currently between the ages of 3 and 7.
Solution:
Establish a 20-year "flip" Unitrust which will make payments to the grandchildren while they
attend college. The trustee will invest the assets for significant growth but little or no income
until the first grandchild begins college. The donors assists grandchildren, reduces income taxes,
and the trust eventually supports MHDF.
- Cash in collectibles. An owner of rare books and valuable antiques wishes to liquidate
the collection and reinvest the proceeds to generate a good income - while avoiding high capital
gains taxes. Solution: Use the collection to establish a tax-exempt Unitrust, which the
trustee will then sell, avoiding all capital gains taxes.
- Augment retirement savings. An individual seeks tax relief during years of high earned
income – and a supplementary retirement plan vehicle that will permit tax-free growth of savings.
Solution: A "retirement Unitrust" can provide (1) a large income tax deduction; (2)
deferral of much – if not all – of the trust income until the individual reaches retirement age;
(3) a substantial post-retirement income; and (4) a significant gift to MHDF when the trust ends.
For more information, please contact us.
Minnewaska Lutheran Home
(320) 239-2217
e-mail:
info@mlh-healthcare.org
The information provides is not intended as legal, tax, or investment advice. Please consult
an attorney, tax or financial planning professional for questions specific to your financial
situation.
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