What are my options on the payout amount?
There are two basic types of charitable remainder trusts: the charitable remainder unitrust (”unitrust”) and the charitable remainder annuity trust (”annuity trust”). The annuity trust must pay you, at least annually, a fixed dollar amount equal to at least 5% of the original fair market value of the assets you contributed to the CRT. The annuity trust payments remains the same despite the CRT’s asset values going up or down in the future. For example, if you were to put $300,000 in an 8 percent annuity trust, it would pay you a fixed $24,000 per year (before taxes).
The more popular of the two types is the unitrust. It instead pays you a fixed percentage, at least 5%, of the fair market value of the trust assets. That value is in turn recomputed each year. Therefore, although the annual payout percentage remains fixed, the actual payout per year varies with the trust ’s total asset value. the unitrust is more popular because the payment rises with any inflation in the value of the unitrust’s assets. For example, if you were to put in $300,000 in an 8% unitrust, it would pay you $24,000 the first year. If the assets had gone up to $350,000 by the beginning of the second year, the unitrust would pay you $28,000 the second year (8% of 350,000).
Another variation of the unitrust is a version that only pays you the ordinary income the CRT receives from its investments. Therefore, the unitrust could invest in growth stocks early on and pay you little income you may want to do so if you are working now and in a high tax bracket. Later when you retire and are in a lower tax bracket, the CRT (remember you can be the trustee) can then shift the assets from the growth stocks to high ordinary income investments, such as bonds and deeds of trust. With the CRT having grown in value over the years, your annual income would be higher than if you had not postponed the income.
Notwithstanding, in the 1997 Tax Act, Congress added another limitation. The present value of the remainder interest that will eventually go to charity must at least equal 10 percent value of the charitable trust assets. When we plan a charitable trust for you we will make sure we consider such limitation.
