A Unitrust refers to a trust from which a fixed percentage of the net fair market value of the trusts assets valued annually, is paid each year to a beneficiary. In these trusts, the donor transfers property to a trust after retaining the right to receive payments from the trust for a specified term. Once the term ends, the trust estate is paid to a public charity designated by the donor. During a unitrust's term, a trustee invests the unitrust's assets and pays a fixed percentage of the unitrust's current value, as determined annually, to the income beneficiaries. If the unitrust's value goes up, its payout increases proportionately. Likewise, if the unitrust's value goes down, the amount it distributes also declines. Payments must be at least five percent of the trust's annual value and are made out of trust income, or trust principal if income is not adequate.
The District of Columbia Charitable Remainder Unit rust (DCC RUT) is a legal arrangement designed to benefit both philanthropic organizations and individual donors. It is a type of trust created under the laws of the District of Columbia, specifically tailored to provide income for donors during their lifetime, while also ensuring a charitable contribution to their chosen charities upon their passing. A DCC RUT allows donors to transfer assets such as cash, stocks, real estate, or other appreciated assets into the trust, thereby removing them from their taxable estate. Once the assets are within the trust, the donor receives regular income payments from the trust for a predetermined period or for their entire lifetime. There are different types of District of Columbia Charitable Remainder Unit rusts, each with unique features and benefits: 1. Standard Charitable Remainder Unit rust: This is the most common type of DCC RUT, where the donor receives a fixed percentage (of not less than 5%) of the trust's assets' fair market value each year. The annual income may fluctuate based on the changing value of the trust's assets. 2. Net Income Charitable Remainder Unit rust: In this type, the donor receives a fixed percentage based on the trust's net income for the year, rather than the fair market value of the trust assets. If the trust generates insufficient income in a particular year, the donor may receive a smaller income or none at all. 3. Flip Charitable Remainder Unit rust: This type allows donors to receive a predetermined fixed income, typically low or zero, during their lifetime or a specified period. The trust "flips" into a standard CUT once a specific triggering event occurs, such as the sale of a particular asset. This structure enables donors to postpone income until a more opportune time. 4. Net Income with Makeup Charitable Remainder Unit rust: Similar to the Net Income CUT, this type pays the donor a percentage based on the trust's net income. However, if there is any shortfall in income payments in a particular year, the trust "makes up" the missed payments in future years when the trust generates excess income. 5. Charitable Remainder Annuity Trust (CAT) vs. Charitable Remainder Unit rust (CUT): Although not specific to the District of Columbia, it is important to mention the difference between a CAT and a CUT. A CAT pays the donor a fixed dollar amount annually, whereas a CUT pays a fixed percentage. The choice between these two depend on individual donor circumstances and goals. Investing in a District of Columbia Charitable Remainder Unit rust provides an opportunity for individuals to balance their financial and charitable interests. By establishing a DCC RUT, donors can receive income throughout their lifetime, claim a charitable income tax deduction, avoid capital gains tax on appreciated assets, and create a legacy of support for causes they deeply care about.
