Charitable remainder trusts (CRTs) are an ideal form of philanthropy for those who wish to make a charitable gift to the University and to receive income for their lifetimes and/or the lifetimes of others. All trust assets are managed by the University of Virginia Investment Management Company (UVIMCO). And, following the recent Private Letter Ruling (PLR), the majority of trusts managed by UVIMCO are comingled with the long-term investment pool.
In Spring 2007, the University received a Private Letter Ruling (PLR) from the Internal Revenue Service. This important tax ruling enables the University to comingle its charitable trust assets — where the University is the sole beneficiary — with the long-term investment pool without regard to unrelated business taxable income (“UBTI”) concerns. This means that most of the University-held trust assets can be invested alongside the endowment’s holdings in real estate, private equity, and other alternative investments, which is expected to increase the value of trust assets at a faster rate than conventional equity and fixed-income investments.
The University’s endowment and trust assets are managed by the University of Virginia Investment Management Company (UVIMCO), a non-profit University-related foundation. To view UVIMCO’s Investment Policy Statement and annual investment returns go to http://www.virginia.edu/uvimco.
A charitable remainder trust:
A charitable remainder trust held at the University of Virginia:
Unitrust (CRUT) — A standard unitrust is revalued each year and your income payments for that year are determined based on the new trust value. Trust value reflects investment performance, and as the trust grows or declines, so does your income payment. You may make additional gifts to this type of trust. A trust addition may allow you an additional charitable tax deduction and is an excellent way to increase the income you already receive.
Net Income Unitrust — This trust pays the beneficiary(ies) the lesser of either the percentage payout rate or the income actually generated within the trust. A net income trust is particularly useful when funded with an illiquid asset such as real estate.
Flip Unitrust — A flip unitrust combines the benefits of a net income unitrust with those of a standard unitrust. The trust functions like a net income trust until the funding asset (real estate or another asset) is sold by the trustee or until a specific date chosen by you (for example: your date of retirement). The trust then “flips” to a straight unitrust, and the beneficiary(ies) begin receiving payments based on the percent payout rate selected when the trust was created.
Annuity Trust (CRAT) — This trust pays the same fixed amount for the entire trust term – between 5% and 7% of the trust’s funding value — regardless of the changing value of the trust assets. Additions may not be made to this type of trust.
Example: A Charitable Remainder Unitrust
Mr. Nelson, age 60, has watched his stock portfolio fluctuate over the past 40 years. He is interested in making a $100,000 gift to the University to fund a scholarship, but is concerned that he might need these assets during retirement. Mr. Nelson decides to fund a $100,000 charitable remainder unitrust using some of his appreciated stock. He will receive 5% of the trust’s value annually — $5,000 in the first year — thus adding to his retirement income. Mr. Nelson is also able to take a $39,752 charitable deduction for funding the trust. Any growth in the trust above the 5% paid out in income to him will remain in the trust. The trust will be revalued at the beginning of each year and Mr. Nelson’s income payments for that year will be based on the new trust value. As the value of Mr. Nelson’s trust grows, so will his income.
Example: A Flip Unitrust
Mr. and Mrs. Baker, both in their 70s, purchased their beach house in the 1970s for $75,000. Even though they have spent many wonderful summers with their son on the property and have supplemented their family income by renting it to others, the beach house has now become a burden. The Bakers decide to place the beach house in a flip unitrust that will benefit themselves and their son. The property is appraised and sold the same year for $350,000. Until the property is sold, the Bakers will receive only the income produced by the property. After it has flipped, they, and then their son, will receive 5% of the trust value annually. After their son dies, the University of Virginia will receive those assets remaining in the trust.
Use our Gift Calculator to see how a charitable remainder trust can work for you.
The University of Virginia does not provide legal, tax or financial advice. We strongly recommend that you consult professional advisors on all legal, tax or financial matters, including gift planning considerations. To ensure compliance with certain IRS requirements, we disclose to you that this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties.