A charitable remainder trust is an irrevocable life income gift. The trust provides income to the donor and/or the life of a beneficiary. The income is typically established as a fixed payment based on the initial value of the trust.
When the last income beneficiary passes away (or at the end of the term of years, depending on how the trust was established), the assets remaining in the trust pass to the charity/organization you name, such as a Sutter Health affiliate. If you desire, the income period of the trust can be established for a specified period of time not to exceed twenty years. The twenty-year maximum does not apply if the trust life is based on your life expectancy
While a charitable remainder trust is irrevocable, there are certain changes that may be made, such as changing the charity to receive the remaining assets or the trustee of the trust.

Because the assets of a charitable remainder trust are destined for a charity, capital gains taxes are not paid on appreciated assets placed in the trust.

How it Works

Because of how a charitable remainder trust is set-up, it is often called a split interest trust. The income portion of the trust may be either an annuity income or a unitrust income.

An annuity income is calculated at the time the trust is established in the trust agreement. It is a fixed amount of dollars based on the then market value of the trust. If the assets of the trust go up in value, the income portion does not change.

With a unitrust, the assets of the trust are revalued annually and the percentage rate established in the trust agreement determines the dollar amount of the unitrust interest. If the value of the principal in the unitrust declined, the value of the interest portion of the unitrust would decline as well. The unitrust interest value would increase if the value of the trust assets increased.

A charitable remainder trust is an attractive planning tool for the disposal of highly appreciated assets. Although the assets revert to the charity rather than the heirs of your estate, the use of an irrevocable life insurance trust in conjunction with a charitable remainder trust could replace the asset's value for your heirs.

Net Income Charitable Remainder Trust

This variation of a unitrust provides that either the specified fixed percentage of the trust assets or the net income of the trust is distributed to the beneficiary, whichever is less. This type of trust is 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 charitable remainder unitrust can be an excellent way to donate appreciated property and turn it into an income stream coupled with tax benefits

You may also add a "makeup provision" to the trust. This allows a trust to distribute more than the fixed percentage of the assets in years where the trust's income exceeded the fixed percentage. In this manner, previous years' shortages, when the trust was not able to earn the fixed percentage payment, may be made up.

Flip Charitable Remainder Unitrust

A flip unitrust blends two types of trusts for greater flexibility . The trust functions as a net income trust until a specified event occurs, such as a birth, death, or the sale of a hard-to-market property.

On January 1 following the specified event, the net income trust converts or "flips" into a standard unitrust. This type of trust functions well for liquid assets such as real estate or other assets that are hard to value.
More information on flip unitrusts

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