Charitable Remainder Unitrust How it works You transfer cash, securities, or other property to a trust. You receive an income tax deduction and pay no capital gains tax. During its term, the trust pays a percentage of its value each year to you or to anyone you name. When the trust ends, its remaining principal passes to the Arch Foundation. Charitable Remainder Trusts are basically similar to the Pooled Income Fund in concept. There are two main types of charitable remainder trusts: Annuity Trusts and Unitrusts. With both types of trusts, you receive a charitable contribution income tax deduction based on your life expectancy, you avoid taxes on capital gains on the sale of appreciated securities or real estate, and you reduce potential estate taxes. The main difference between the two types of charitable remainder trusts is the way your annual income from the trust is determined. The assets given to charitable remainder unitrusts are valued each year; an annual income payout is made based upon a fixed percentage determined when the trust is established. This allows for a variable payout from year to year, in contrast to the fixed dollar amount payout from the annuity trust. The unitrust is often used when inflation and its effect on the future purchasing power of a fixed income is a concern. The same basic tax benefits that applied to the annuity trust also apply to the unitrust. Unitrusts are usually created with assets worth $250,000 or more. Example: Mrs. Smith creates a trust worth $250,000. The trust has a 7% payout rate. This year she receives $17,500 income, or 7% of $250,000. In a year, the principal grows to $255,000. Next year, she will receive 7% of $255,000, or $17,850. However, unitrust income fluctuates with the market value of the investments in the trust. If the principal is worth $245,000 the next year, she will receive 7% of $245,000, or $17,150. Types of Giving | Featured Donors | Professional Advisory Reference | Heritage Society | Get In Touch! | Home