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New York Elder Law Estate Planning: Unitrusts

There are a variety of different types of trusts that an individual can use to their benefit while they are alive or in order to preserve their wealth for their family after they pass. Depending on it’s purpose, the grantor of a trust will make either a irrevocable or revocable trust. Irrevocable trusts cannot be modified without permission of the beneficiary since the grantor is giving up rights to their assets to the trust, versus a revocable trust where the grantor can modify the trust terms as they desire during their lifetime and upon their death, the assets transfer to the trust.

 

One unique type of trust that a grantor can establish for their benefit and for the benefit of a charity is a charitable remainder trust unitrust. Charitable remainder unitrusts are a type of irrevocable trust with specific characteristics setting it aside from other trusts. This type of trust distributes a certain percentage of the value of the assets in the trust to a beneficiary that is not a charity, usually a grantor of the trust or whomever the grantor has named to receive the named distribution. The grantor sets a specific timeline for the distributions to the beneficiary, and upon the termination of that timeline, the remaining assets are distributed out to the charity named.

 

In order to determine how much the non-charitable beneficiary will receive, the trustee must use a formula that requires minimum distributions from the trust annually. The trustee will first determine the fair market value of the trust at the end of the given year by obtaining a valuation of the assets in the trust and then will distribute out the percentage of that asset value named in the document.

The governing document must name a percentage of at least 5%, but no more than 50%. Upon the termination of the specified period, the trust will terminate and distribute out in full to the named charity. The charity must qualify as such under the IRS code 170(c) in order to take.

 

This type of trust is tax-exempt entity, thus, not subject to a gift tax for distributions if the grantor is also the beneficiary of the non-charitable distribution. The amount of principal, also known as the assets, are not considered when assessing the estate taxes for the grantor who is commonly the beneficiary, providing a number of tax advantages to the grantor.

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