The Haverford School—Planned Giving

Charitable Remainder Unitrust

A charitable remainder unitrust (CRUT) is a separately invested and managed charitable trust that pays a percentage of its principal, re-valued annually, to you and/or other income beneficiaries you name for life or a term of years (up to a maximum of 20). You receive a charitable income tax deduction for a portion of the value of the assets you place in the trust. After the trust terminates, the balance is transferred to The Haverford School to be used as you designate.

Is a CRT right for you?

A charitable reminder unitrust could be the right life income gift if you...

would like to make a significant gift to Haverford while retaining or increasing your income,
Yhold appreciated property, such as securities, a closely-held business, real estate or partnership interests, and would like to avoid capital gains tax associated with a sale,
want the opportunity for your income to grow over time, and,
desire maximum flexibility in your gift, including choosing the person who administers your gift, guiding its investments, and choosing your payment percentage (5%-6% is typical).

How does it work?

Haverford provides you and your attorney with a draft trust instrument.
You irrevocably transfer cash, securities, or other property to fund the trust.
You receive an income tax deduction and pay no capital gains tax on the transfer.
During its term, the trust pays a percentage of its value each year to you and/or other beneficiaries you have named.
When the trust ends, its remaining principal is transferred to Haverford.

What are the benefits?

Offers you maximum flexibility for the gift, including choosing your payment percentage (5%-6% is typical), the person or entity who administers your gift and guides its investments, and the trustee (which could be Haverford).
Has the potential to reduce your income taxes now and estate taxes later.
You pay no capital gains tax when the asset used to fund the CRUT is sold.
Allows you to retain or increase your income and make a significant impact at Haverford.

What are the tax benefits?

You will receive a federal income tax deduction for a portion of your gift.
You will avoid all upfront capital gains tax on any appreciated assets you transfer to the unitrust.
You may reduce your estate tax liability by removing a large taxable asset from your estate.

The best assets to fund a CRUT are those that have greatly appreciated in value since you purchased them, specifically publicly traded securities, real estate and stock in some closely-held corporations.

The CRUT will be re-valued at the beginning of each year to determine the dollar amount of income you will receive. If you prefer to receive a fixed income, regardless of the trust's performance, a charitable remainder annuity trust (CRAT) might be the right option for you.

Types of CRUTS

There are three types of unitrusts: a standard unitrust, a net income unitrust, and a combination or "flip" unitrust. The income from each trust will vary from year to year, and the right choice for you will depend on your goals.

Standard unitrusts provide an income that is based on a fixed percentage of the trust's assets, which is determined at the time the trust is created. (The unitrust percentage must be at least 5 percent and is multiplied by the fair market value of the trust assets at the beginning of each year to determine the annual payout to the income beneficiaries.) A standard unitrust provides the most flexible investment options and is usually invested for a total maximum return.

Net income unitrusts provide annual payments in the lesser of two amounts: 1) the fixed percentage of the trust's annual value, as described above, or 2) the net income of the trust. This may be the best choice for younger donors who are not seeking large payments immediately but want to build a fund for potentially higher payments in the future. A net income unitrust may initially be invested in assets that produce relatively low interest or dividend income. When income beneficiaries are ready, the investments can be reallocated to produce a higher income.

Flip unitrusts are a good option when an illiquid, non-income producing asset, such as real estate or closely held stock, is being used to fund a CRUT. A flip trust begins operating as a net income unitrust, paying only any actual earnings (for example, rent from real estate) to the income beneficiaries. Then, at a date in the future (such as on the date that the real estate used to fund the CRUT is sold, or when you retire), the trust "flips" to become a standard unitrust.