A charitable flip unitrust is the same as a charitable remainder unitrust, except most of your payments are deferred until a designated time in the future, such as the date you retire or the sale of real estate or a closely-held stock.
Initially, the trust makes yearly payments that are equal to a percentage of its value (determined annually) or its net income, whichever is less. If the trust earns no net income during this period, it makes no payments. After the trust flips, it makes payments equal to a percentage of its value, regardless of its net income.
Is a charitable flip unitrust right for you?
Here are some simple questions to help you decide:
- Are you are considering a gift amount of $25,000 or more?
- Do you want to supplement your retirement income?
- Do you want to give a hard-to-sell asset (e.g., real estate or closely-held stock)?
- Do you want to save on income tax and capital gains taxes?
- Do you want to itemize your deductions?
- Do you want to choose the person who administers your gift and guides its investments?
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Example
George, 58, made a wise $50,000 investment in Berkshire Hathaway stock years ago. It's now worth $1,200,000. He makes the maximum contribution to his 401(K) retirement plan each year and is interested in options for generating additional retirement income. He also would like to make a leadership level gift to Rochester Regional Health.
After consulting with his advisors, George chooses to fund a five percent flip unitrust with $1,200,000 in Berkshire Hathaway stock. His unitrust will flip payment methods when he turns 68, the age at which he expects to retire. In the intervening years, his trustee is free to sell the Berkshire Hathaway stock to reinvest in a diversified portfolio without paying any capital gains tax.
Since George doesn’t want to receive payments from the trust while he is still working, the trustee can focus on investing for growth and minimizing net income during the trust’s pre-flip years. This strategy will allow the trustee to minimize the trust’s payments to George during these years and to maximize them during his retirement years.