A charitable remainder unitrust (CRUT) is a separately invested and managed charitable trust that pays a percentage of its principal, re-valued annually, to you and/or other income beneficiaries you name for life or a term of years (up to a maximum of 20). You receive a charitable income tax deduction for a portion of the value of the assets you place in the trust. After the trust terminates, the balance is transferred to Merrimack College to be used as you designate.
The best assets to fund a CRUT are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate and stock in some closely-held corporations.
The CRUT will be re-valued at the beginning of each year to determine the dollar amount of income you will receive. If you prefer to receive a fixed income, regardless of the trust's performance, a charitable remainder annuity trust (CRAT) might be the right option for you.
There are three types of unitrusts: a standard unitrust, a net income unitrust, and a combination or "flip" unitrust. The income from each trust will vary from year to year, and the right choice for you will depend on your goals.
Standard unitrusts provide an income that is based on a fixed percentage of the trust's assets, which is determined at the time the trust is created. (The unitrust percentage must be at least 5 percent and is multiplied by the fair market value of the trust assets at the beginning of each year to determine the annual payout to the income beneficiaries.) A standard unitrust provides the most flexible investment options and is usually invested for a total maximum return.
Net income unitrusts provide annual payments in the lesser of two amounts: 1) the fixed percentage of the trust's annual value, as described above, or 2) the net income of the trust. This may be the best choice for younger donors who are not seeking large payments immediately but want to build a fund for potentially higher payments in the future. A net income unitrust may initially be invested in assets that produce relatively low interest or dividend income. When income beneficiaries are ready, the investments can be reallocated to produce a higher income.
Flip unitrusts are a good option when an illiquid, non-income producing asset, such as real estate or closely held stock, is being used to fund a CRUT. A flip trust begins operating as a net income unitrust, paying only any actual earnings (for example, rent from real estate) to the income beneficiaries. Then, at a date in the future (such as on the date that the real estate used to fund the CRUT is sold, or when you retire), the trust "flips" to become a standard unitrust.
With all three options, if you choose to designate Merrimack to serve as trustee, the CRUT is managed by highly qualified investment professionals. After the CRUT terminates, the remaining principal will be distributed directly to Merrimack College to be used as you've directed.