A charitable remainder unitrust (CRUT) provides a donor with a payment (paid on an annual, bi-annual or quarterly) based on a percentage of the fair market value of the trust assets, as revalued every January 1 st. Therefore, if the value of the trust principal increases, so does the donor’s payout from the CRUT. The donor of a CRUT will receive an income tax deduction equal to the present value of the charitable remainder interest and be able to bypass capital gain (if applicable).
Please see General Information on Charitable Remainder Trusts for additional information.
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Types of CRUTs
There are a number of types of CRUTs. Its differing characteristics offer a number of planning opportunities, depending on the donor’s specific circumstances. The most common types are:
 Straight Payout Unitrust
This CRUT pays to the beneficiary a fixed percentage of the value of the trust’s assets. The amount paid is not dependent on the income produced by the trust, but is determined by multiplying the percentage payout rate by the fair market value of the trust assets, as valued annually. In years when there is no growth and income, the principal of the trust must be invaded to provide for the fixed distribution requirement. The amount paid increases or decreases based on the annual re-valuation of the assets.
Net Income Charitable Remainder Trust
This type of CRUT pays the beneficiary a distribution of either (a) the specified fixed percentage or (b) the net income of the trust; whichever is less. Unlike the straight payout CRUT, this trust does not allow the trustee to invade the principal to make a payment. Net income CRUTs are often used to handle real estate because there is no fixed distribution requirement, which gives the trustee time to sell the property. A net income CRUT can be a good way to donate appreciated property and turn it into an income stream coupled with tax benefits.
Net Income with Make-Up
In addition to a normal net income CRUT, a donor may also add a “makeup provisio" to the trust. This allows a donor to receive more than the fixed percentage of the assets in years when the trust's income exceeded the fixed percentage and shortfalls in previous years. Following the years when the trust was not able to earn the fixed percentage payment, those shortfalls may be made up to the extent of excess income. This could be an appropriate vehicle to fund with growth stocks and/or real estate.
Flip Unitrusts
With this CRUT, the donor initially receives the lesser of (a) any actual income or (b) the fixed percentage (like a net income CRUT). Then, after a set conversion date or event, the trust would convert, or “flip,” to a straight payout CRUT, which provides a fixed distribution percentage payout each year. This works especially well for donors who want to use non-marketable assets that may not be sold immediately.
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Examples Uses of CRUTs
Education Unitrust
An education unitrust is an excellent way for a donor to provide for the college education of a child, nephew, niece or grandchild. The CRUT is established, but the payout is deferred until the beneficiary reaches a certain age. Then the trust typically pays a fairly high amount for a term of four or five years. A major benefit of the education unitrust is that the payments received are taxed to the student, who is usually in a lower bracket than the donor. The donor's higher bracket maximizes the charitable income tax deduction, while the income distribution from the trust is taxed at the student's lower income tax bracket.
Testamentary Unitrust Funded by Qualified Retirement Plan Rollovers
Certain qualified retirement plans can be used to fund testamentary CRUTs. (Currently it is not possible for a donor to transfer his or her retirement plan during life without paying ordinary income tax on the entire plan). By naming a CRUT as beneficiary of your qualified plan, plan assets rolled over to the CRUT will not incur an income tax. Therefore, the rollover provides a payout to beneficiary(ies) for a term and preserves the remainder to provide a gift for the OSU program or college of the donor’s choice without incurring income tax on the plan assets.
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Contact Us
If you have any questions about any charitable giving information or opportunities to support a specific college or program, please contact the Office of Planned Giving at (800) 622-4678 at plannedgiving@osugiving.com.
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