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.
A South Dakota Charitable Remainder Unit rust (CUT) is a type of charitable trust that allows individuals to support charitable causes while also providing potential financial benefits for themselves or their designated beneficiaries. It is important to note that specific legal advice should be sought when considering creating a charitable trust. A Charitable Remainder Unit rust is established by transferring assets such as cash, securities, or real estate into an irrevocable trust. The trust is managed by a trustee, typically a financial institution or an attorney, who must act in the best interests of the trust and its beneficiaries. One of the key benefits of a Charitable Remainder Unit rust is the potential for income tax deductions. When the trust is established and funded, the donor can receive an immediate income tax deduction for the estimated present value of the remainder interest in the trust, which is the portion that ultimately goes to the designated charity. This deduction can be spread over multiple years if the donation exceeds the donor's annual deduction limit. In South Dakota, there are several types of Charitable Remainder Unit rusts recognized, including: 1. Charitable Remainder Unit rust with a fixed percentage payment: In this variation, the donor or designated beneficiaries receive a fixed percentage (typically between 5% and 8%) of the trust's fair market value, revalued annually. If the trust's value increases, the income payments will also increase, providing potential inflation protection. 2. Net Income Charitable Remainder Unit rust: The income payments in this type of trust are based on the net income of the trust assets. The trustee distributes either the trust's net income or a fixed percentage, whichever is lower. If the trust income is not sufficient, the payments may be reduced or skipped altogether. 3. Flip CUT: The Flip CUT starts as a Net Income Charitable Remainder Unit rust and converts to a fixed percentage payment when a predetermined triggering event occurs, such as the sale of a specific asset or reaching a specific age. 4. Standard Unit rust: The Standard Unit rust pays a fixed percentage of the trust's value that is determined annually. This percentage is specified in the trust agreement and does not change over time, providing a consistent income stream. When establishing a South Dakota Charitable Remainder Unit rust, it is crucial to consult with an attorney or financial advisor experienced in estate planning and charitable giving. They can assist in determining the most suitable type of CUT and ensure compliance with state laws, Internal Revenue Service (IRS) regulations, and other relevant legal requirements.
