Class of 1954 50th Reunion Gift

Charitable remainder unitrusts enable donors to make a significant gift to Carleton and still continue to enjoy lifetime income from the gift assets. Although the term “unitrust” may conjure up visions of attorneys and thick legal documents, the logistics are actually quite straightforward. Carleton’s experienced planned giving specialists can guide you through the process.

A charitable unitrust is a flexible strategy that can be designed to provide income for you, your spouse, or your children and possibly other beneficiaries. A wide variety of assets can be donated to a unitrust—cash, publicly-traded securities, mutual fund shares, unencumbered real estate and closely-held stock. The potential benefits of a unitrust are very attractive:

• Increase current income
• Unlock highly appreciated assets without incurring capital gains tax
• Diversify your investment portfolio
• Claim an income tax deduction
• Feel GREAT about supporting Carleton’s future!

How Does a Unitrust Work?

A charitable remainder unitrust is an arrangement, defined by federal tax law, through which a donor can irrevocably transfer assets into a trust while reserving an income interest in the assets. A charitable unitrust provides the named beneficiaries—usually the donor and spouse—an income based on a percentage of the unitrust assets’ annual fair market value. Donors may serve as their own trustee, or they may select an institutional trustee. If Carleton serves as the trustee, the donor may negotiate an annual payout rate ranging from 5 percent to 7 percent—depending on his or her financial, tax, and charitable goals.

By setting up a unitrust, the donor can also claim a charitable deduction for a portion of the gift amount. (The deduction is calculated using an IRS formula.) Upon the death of the last income beneficiary, the trust assets can be used by Carleton either for the endowment or for a specific purpose chosen by the donor. The suggested minimum for establishing a charitable unitrust through Carleton is $100,000, or periodic gifts totaling that amount.

Example

Dave and Susan Jones, members of Carleton’s Classes of 1954 and 1955, own appreciated stock in a company that went public a few years ago. Although the value of this stock has increased significantly over time, the stock is unlikely to produce any dividends in the near future. As the Joneses consider various options for making their fiftieth reunion gifts to Carleton, they are also looking for ways to enhance their retirement income.

Dave and Susan can achieve several objectives through a charitable unitrust. By transferring stock valued at $100,000 to a 6 percent Carleton-managed unitrust, the Joneses can immediately increase their income by $6,000 and claim a charitable income tax deduction of approximately $38,000, which will result in substantial current income tax savings. In addition, they are able to diversify their position in a volatile stock without incurring capital gains tax. While enjoying all of these benefits, Dave and Susan also have the immense joy and satisfaction of making a wonderful gift to Carleton which can be divided between their two classes for reunion gift credit.

Use Retirement Assets to Fund a Unitrust

Donors may also use qualified retirement assets to fund a unitrust to benefit a spouse or children and then make a gift to charity. Upon the plan participant’s death, all or part of the donor’s IRA or pension assets can be rolled into a charitable remainder unitrust. The participant’s estate will receive a charitable deduction for a portion of the amount used to fund the unitrust. The unitrust would then pay income to the named beneficiaries for their lifetime, or for a term of years (not to exceed 20). At the end of the unitrust’s term, the assets would then pass to Carleton.

If you like the idea of providing a stream of income over time to your heirs, rather than distributing assets in a lump sum, then a charitable remainder unitrust is a strategy worth considering. These arrangements require careful planning and must be coordinated with your overall estate plan, but the advantages to family members are very attractive.

Example

John Gibson, a member of Carleton’s Class of 1954, would like to establish an endowed scholarship at Carleton that would eventually be funded with assets from his 401(k) plan. He wants to make sure, however, that his wife Mary can continue to enjoy an income stream from his retirement plan assets after his death.

After consulting with his financial advisor, John decides to divide his 401(k) plan, which totals $300,000, into two equal parts. He designates Mary to be the primary beneficiary of 50 percent of his qualified pension account, and with the balance, he names a charitable remainder unitrust for the benefit of Mary as the other primary beneficiary. John documents this unitrust arrangement with Carleton so that this gift can be counted toward the Class of 1954’s Fiftieth Reunion total.

Following John’s death, Mary will receive half of the 401(k) account in a lump sum, which she can withdraw or roll into her own retirement account. The remaining half of John’s 401(k) account will fund a charitable remainder unitrust that will pay Mary 6 percent of its assets, as revalued annually, for her lifetime. Under this plan, Mary will receive about $9,000 from the unitrust the first full year and 6 percent of the trust’s value every year thereafter. Mary will be taxed on payments from the trust at her own income and capital gains tax rates. At Mary’s death, the charitable unitrust will terminate and the remainder will be distributed to Carleton to fund the endowed scholarship John envisioned.