There are two types of Charitable Remainder Trusts (also called Life Income Trusts): Annuity Trusts and Unitrusts. Both enable you to make a significant future gift to the University of Kentucky while providing income and other benefits to you and those you love. With a Charitable Remainder Trust, you transfer cash or other assets to a Trust and receive income back for your lifetime and that of another beneficiary (if you choose). This income can be a fixed dollar amount (Annuity Trust), or a fixed percentage of the Trust (Unitrust), for a pre-determined number of years, or for life. Upon the death of the last beneficiary, or completion of the term of years, the remaining value of the Trust is distributed to the University for a purpose you designate.
It may be possible to reduce probate costs and inheritance taxes with Charitable Remainder Trusts. Additionally, if appreciated property is used to create the Trust, capital gains taxes are avoided entirely when the property is sold. This is a powerful tool for individuals interested in the security of a regular, lifetime income who also want to make a significant gift to the University of Kentucky in the future. The Charitable Remainder Trust can be especially beneficial when low-income, highly-appreciated property is used to create the Trust.
An Annuity Trust pays a fixed dollar amount (annuity) to the donor or his/her named beneficiary(ies). Unlike the Unitrust, no additions can be made to an Annuity Trust once it is established. The Annuity Trust is valued once – when it is established – and this enables you to know what your income will be each year.
The Unitrust pays you an amount equal to a fixed percentage of the net fair market value of the Trust assets as recalculated annually. Additions may be made to a Unitrust at any time. The major difference between the Unitrust and the Annuity Trust is that the amount of income you receive from the Unitrust will fluctuate from year to year according to the investment performance. However, the Unitrust also offers a hedge against future inflation since any income not paid out to you is added back to the Trust principal. Ideally, payments the next year are therefore based on a higher Trust value.
For additional information, please contact:
Ford Stanley, Senior Director of Estate and Gift Planning, Executive Director of University of Kentucky Real Estate Foundation