A charitable remainder unitrust (CRUT) is a powerful planned giving tool for those who want to make a major philanthropic contribution while creating a lifetime income stream and maintaining the potential for income growth. Unlike a gift annuity or annuity trust, a CRUT pays you a percentage of its value each year: if the trust grows, your income grows with it. It also offers more flexibility than most other life income plans, including the ability to fund with real estate and other illiquid assets.

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What Is a Charitable Remainder Unitrust (CRUT)?

A charitable remainder unitrust (CRUT) is a tax-exempt trust into which you transfer assets, such as cash, securities, real estate or other property, in exchange for annual payments based on a fixed percentage of the trust's value, revalued each year. You choose the trustee who administers the trust and guides its investments. Because the trust is tax-exempt, its invested assets can grow tax-free. If the trust grows, your annual payments grow. When the trust ends, the remaining value supports Pomona College students by funding scholarships, experiential learning opportunities and more. Minimum gift: $100,000.

Is a Charitable Remainder Unitrust Right for You?

A Pomona Plan CRUT may be a strong fit if you want to:

• Receive income that can grow over time, providing a potential hedge against inflation
• Avoid or defer capital gains tax on highly appreciated assets
• Receive an immediate charitable income tax deduction
• Choose who administers your gift and guides its investments
• Fund with real estate or other illiquid assets as well as cash and securities
• Add additional gifts to the trust over time without establishing a new trust
• Make a significant gift of $100,000 or more that supports future Pomona students

Calculate Your Payments and Deduction
 

How Does a Charitable Remainder Unitrust Work?

1. You establish an irrevocable trust. You transfer assets to a tax-exempt trust governed by a trust agreement. The gift is irrevocable, and in exchange you receive income for life along with significant tax benefits.
2. You choose your trustee. Unlike a gift annuity, a CRUT is a separate legal entity. You select the trustee responsible for administering the trust and guiding its investments. The trustee may be Pomona College, a financial institution, an advisor or another qualified institution or individual.
3. You choose your payment percentage. You select the percentage of the trust's value to be distributed each year to income beneficiaries. The minimum is 5%. A rate of 5%-6% is typical, as a lower rate gives the trust's assets the best chance to grow. If they do, your payments increase with them.
4. Payments are based on annual revaluation. Each year, the trust's assets are revalued and your payment is recalculated. If the trust grows, payments increase. If it declines, payments decrease. This variability is the key difference between a CRUT and a fixed-payment charitable remainder annuity trust (CRAT).
5. You name your beneficiaries. You decide who receives payments. Most donors name themselves, or themselves and a spouse. You may also designate others, such as parents, siblings,  children, friends or employees. Payments can last for one or more lifetimes, a fixed term of up to 20 years or a combination of both.
6. You can add to the trust at any time. Additional gifts to your CRUT earn a new charitable deduction and increase future payments without the cost or effort of establishing a new trust. This is a key advantage over a CRAT, which does not allow additional contributions.
7. Your legacy supports Pomona students. When the trust ends, the remaining principal funds charitable purposes you have designated. In the case of the Pomona Plan, your principal goes on to support scholarships, experiential learning opportunities and more for Pomona students.

Payment Flexibility: A Key Advantage for Illiquid Assets

If you plan to fund your CRUT with real estate or other assets that may take time to sell, you can include a net income provision that limits payments to the lesser of the unitrust percentage or the trust's actual net income. This gives your trustee the time needed to sell the asset at a fair price without forcing a rushed transaction.

This net income limitation can apply for the entire term of the trust or only until a specific triggering event — such as the sale of the contributed asset — at which point payments revert to the standard unitrust percentage. This variation is known as a net income with makeup charitable remainder unitrust (NIMCRUT or “Flip CRUT”).

CRUT vs. CRAT: Which Charitable Remainder Trust Is Right for You?

A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, revalued each year. If the trust grows, payments grow. A CRUT also allows additional contributions and can accommodate real estate and other illiquid assets, making it the more flexible of the two structures.

A charitable remainder annuity trust (CRAT) pays a fixed annual dollar amount that is established at the trust's inception. This annual payment never changes unless the trust's assets are completely exhausted. A CRAT is the stronger choice for those who prioritize predictability above growth potential. A charitable gift annuity (CGA) is a simpler solution that provides even more stability than a CRAT as it cannot be depleted. 

If you're unsure which structure fits your situation, our Pomona Plan team is happy to walk you through your options. You can reach us at 1-800-761-9899.  

Tax Benefits of a Charitable Remainder Unitrust

Immediate charitable income tax deduction. You receive a federal income tax deduction in the year of your gift based on the present value of the remainder interest — the portion of the trust's assets projected to eventually pass to the charity. Any unused deduction can be carried forward for up to five additional years.

Capital gains tax avoidance on appreciated stock. If you fund your CRUT with appreciated securities, you pay no capital gains tax when you make your gift. Because the CRUT is tax-exempt, it also pays no capital gains tax when it sells those assets, allowing your trustee to reinvest the full value in a diversified portfolio on a tax-free basis.

Tax-advantaged payments. CRUT payments are typically taxed as ordinary income, though a portion may be taxed at lower capital gains rates or even partially tax-free in years when the trust's income is insufficient to cover the full distribution.

Estate and probate savings. Removing assets from your taxable estate through a CRUT may reduce future estate taxes and probate costs, depending on your situation and applicable law.

Best Assets to Fund a Charitable Remainder Unitrust

Appreciated securities. Stocks or other securities with a low-cost basis are among the most effective assets to contribute to a CRUT. You avoid the capital gains tax you would owe on a sale, your trustee can immediately reinvest the full proceeds, and you receive an income stream that can grow over time.

Cash and low-yield accounts. Savings accounts, CDs and money market funds often underperform. A CRUT can convert those dollars into a growing income stream with an immediate tax deduction.

Debt-free real estate and illiquid assets. A CRUT is one of the few planned giving vehicles that can accommodate real estate and other hard-to-sell assets. With a net income provision in place, your trustee can take the time needed to sell at a fair price.
 

Real-World Example: Turning $500,000 in Appreciated Stock into a Growing Income Stream

Marguerite Russell is 76 years old and her husband John is 75. Many of the stocks in their portfolio have appreciated substantially in value over the many years the Russells have owned them. They are enthusiastic about making a major gift to support Pomona College, but they also would welcome a way to receive greater income from their investments without paying a big capital gains tax.

After consulting with their advisor, the Russells find that a 5% charitable remainder unitrust funded with $500,000 in assets will meet their needs perfectly. They fund their unitrust with $400,000 in stocks plus $100,000 from a money market fund. They paid a total of $75,000 for the stocks, which currently produce about 2% in dividends each year. Their money market fund has been earning about 2% interest annually.

What they gain:

• Year-one income of $25,000, significantly more than the $10,000, their portfolio had been generating.
• An immediate income tax deduction of approximately $240,960*.
• No capital gains tax when the trust sells and diversifies their stock holdings — the full $500,000 goes to work immediately.
• Growing income over time, assuming 7% net annual growth in the value of the trust assets, payments rise to over $33,647 per year within 16 years.
• A major gift to Pomona, assuming 7% net annual growth in the value of the trust assets, over $240,960 remains for the College when the trust ends

Future payment amounts and remainder values will be lower if the trust earns less than 7% annually. Deduction amount varies with timing. For educational purposes only; not tax advice.

Frequently Asked Questions About Charitable Remainder Unitrusts

What is the difference between a CRUT, a CRAT and a CGA? A charitable remainder unitrust (CRUT) pays a fixed percentage of the trust's value, revalued each year, so payments can rise or fall with the trust’s investment returns. A charitable remainder annuity trust (CRAT) pays a fixed dollar amount each year, and a charitable gift annuity (CGA) is a simpler annuity contract where fixed annual payments are backed by the full resources of Pomona. 

What is the minimum gift for a Pomona Plan CRUT? The minimum gift required by Pomona College is $100,000.

Can I fund a CRUT with appreciated stock? Yes, and it is one of the most tax-efficient ways to do so. You pay no capital gains tax on the transfer, and because the trust is tax-exempt, your trustee can sell and reinvest the full value immediately without any capital gains liability.

Can I add to my CRUT after it is established? Yes. Additional gifts to your CRUT earn a new charitable deduction and increase future payments without the need to establish a new trust. This is a key advantage over a CRAT, which does not permit additional contributions.

What is a NIMCRUT or “Flip CRUT”? A net income with makeup charitable remainder unitrust (NIMCRUT or “Flip CRUT”) is a variation that limits payments to the lesser of the unitrust percentage or actual net income until a triggering event, such as the sale of a contributed asset. It is particularly useful when funding a CRUT with real estate or other illiquid assets.

Who can receive payments from a CRUT? You decide. Most donors name themselves or themselves and a spouse, but you may designate other individuals, such as parents, siblings, children or non-relatives like household employees or a close friend, and structure the trust to benefit multiple charities.

How long do CRUT payments last? Payments can last for one or more lifetimes, a fixed term of up to 20 years or a combination of both.

What happens to the remaining assets when the trust ends? All remaining principal goes to the charitable purposes you have designated. In the case of a Pomona Plan CRUT, your remaining principal will support scholarships, experiential learning opportunities and other critical programs for Pomona students.

Let’s Plan Together

Want to know exactly how much income a Pomona Plan CRUT could generate and what you could save in taxes? Our Pomona Plan advisors can help design a personalized strategy that reflects your goals, assets and vision for retirement. You can reach us at 1-800-761-9899.