Flexibility and Options With a Charitable Trust

Disinherit your favorite Uncle – Sam. This charitable trust helps you reduce taxes, fund ministry and control timing of your income while maintaining control over the charitable beneficiaries.

Owners of appreciated property, farm land, and securities with a low cost basis can benefit from this strategy.

For those considering a Charitable Remainder Trust as an estate or retirement planning tool, take a look at the Net Income with Make-up provisions of a CRUT (NIMCRUT).

While the standard Charitable Remainder Unitrust (CRUT) requires a minimum annual distribution based on annually revalued assets, it is rigid in its distribution rules. By adding a net income feature you receive the lesser of all the trust income or the original pay-out percentage. If you earn income, you have to take it; however, if the trust earns no income, the beneficiary can defer recognition.

A customized NIMCRUT, or "spigot trust" directs the trustee to turn the income streams on and off as needed by the beneficiary. The traditional NIMCRUT funding approach uses growth mutual funds to prevent unwanted income from spilling out of the trust. When income is needed, the assets inside the trust are generally repositioned into income funds capable of generating the required pay-out.

This traditional method does not effectively control ordinary income that forces unwanted distributions from the trust. This happens when net income is produced from the occasional capital gains or dividends generated by an investment in the trust.

A solution lies in a proper trust drafting and a series of deferred annuity contracts that have "saved income", but as long as an independent trustee refuses to take it, the income can remain undistributed. When the trustee holds several annuity contracts and specifies that one be completely invested in a fixed portfolio, the income beneficiary can be assured that at least some income will always be available for distribution.

For example, the trustee may direct the "spigot" be opened to pay for children's tuition and then closed until income is needed for retirement, when it is again reopened.