Charitable Remainder Unitrust (CRU)

  • Partial income tax deduction.
  • Receive a percentage of the trust’s value as income every year for one or more lifetimes or a term of years.
  • Customizable to meet differing objectives.
  • Variable Income can grow (or shrink) depending on investment performance.

Charitable Remainder Unitrust

Mary Lou Lambert, aged 62, started working for the local savings bank as a teller when she was just 19 years old. Over the years she worked her way up in the company. When it went public ten years ago, she was one of the largest shareholders. All the while, Mary Lou has been very actively involved with the United Way, a role she felt important both for the community and her bank. Four years ago, Mary Lou’s bank was acquired in a stock swap, making Mary Lou’s share of the bank worth about $4 million. While she enjoys her newfound wealth, Mary Lou is approaching retirement age and it concerns her that the single bank stock represents over two-thirds of her net worth. She would like to diversify her portfolio, but, because her basis is near $0, she would be subject to Federal capital gains taxes, state income taxes and other taxes, which could total as much as 25% of the value of any stock she sells.

After talking with one of the United Way’s planned giving specialists, Mary Lou decides to establish a 5% Charitable Remainder Unitrust (CRUT) using one third of her stock, worth $1 million. She will be eligible for a charitable deduction of about $400,000 which she can use to shelter capital gains from the sale of an additional $500,000 of her stock, proceeds of which can be reinvested elsewhere. The $1milion worth of shares she placed in the CRUT can be sold without any capital gains (since the CRUT is a charitable entity) and can be reinvested in other assets. Mary Lou will receive income of 5% of the trust’s value each year, at the outset about $50,000 per year. When Mary Lou dies, the trust’s assets will pass to the United Way and will establish an endowment in Mary Lou’s name.

Mary Lou will have reduced her risk by reducing her exposure to the bank stock from $3 million to $1.5 million without paying any net capital gains taxes, which might have cost her as much as $375,000 had she simply sold $1.5 million of the stock, and might have reduced her investable principal (and thus her income) by up to 25%.

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