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.
New Mexico Charitable Remainder Unit rusts: Understanding the Basics and Types New Mexico Charitable Remainder Unit rust (NMC RUT) is a legal and financial arrangement designed to benefit both the donor and a chosen charity in the state of New Mexico. It offers individuals a way to donate assets while retaining an income stream during their lifetime. A NMC RUT combines the benefits of tax planning, charitable giving, and financial management. In a NMC RUT, the donor transfers assets, such as cash, real estate, or securities, to a trust. The trust then pays the donor or other designated beneficiaries a fixed percentage of the trust's asset value, revalued annually. This income stream can be paid for a certain period or for the lifetime of the beneficiaries. After the beneficiaries pass away or the specified period ends, the remaining assets are transferred to the charitable organization(s) designated by the donor. There are different types of New Mexico Charitable Remainder Unit rusts that individuals can choose from based on their specific goals and circumstances. These include: 1. Charitable Remainder Unit rust: A standard NMC RUT that provides income payments based on a fixed percentage of the trust's net fair market value, revalued annually. This allows the income to fluctuate based on the trust's performance. 2. Net Income Charitable Remainder Unit rust: With this type of NMC RUT, the income payments to the beneficiaries are based on the trust's net income, as determined annually. If the trust's net income is lower than the specified percentage, the remaining amount is accumulated and paid out in future years. 3. Flip Charitable Remainder Unit rust: This NMC RUT starts as a net income unit rust and then "flips" to a standard unit rust upon the occurrence of a triggering event, such as the sale of a specific asset or the attainment of a specific age by the donor or beneficiary. This allows for flexibility in the income payment structure. 4. Charitable Remainder Unit rust with Net Income Makeup: This NMC RUT provides beneficiaries with a fixed percentage based on the trust's net fair market value, similar to a traditional CUT. However, if the net income is insufficient to meet the fixed percentage, any shortfall can be made up in future years. New Mexico Charitable Remainder Unit rusts are commonly used for various reasons, including tax advantages like income tax deductions and avoidance of capital gains tax on appreciated assets. They allow individuals to support charitable causes close to their hearts while still receiving income during their lifetime. Before establishing a NMC RUT, it is important to consult with legal, financial, and tax professionals to ensure the trust structure aligns with your unique objectives and provides maximum benefits.
