Retirement Planning with a Charitable Twist

By: Laurie Valentine- COO & Trust Counsel

Cutbacks in the potential to make deductible retirement plan and IRA contributions have left many executives and professionals looking for tax relief in their highest earning years. Many are also looking for a supplementary retirement savings vehicle that permits tax-free growth of their nest egg.

A “retirement unitrust” may be the right planning tool for such individuals, if they are motivated to benefit charitable causes, as well as themselves.

A “retirement unitrust” is a charitable remainder trust that pays the lesser of the net income generated by the trust assets or the unitrust amount (designated percentage of trust asset value, as revalued each year) until a triggering event designated in the trust agreement converts (flips) the trust into a standard charitable remainder unitrust. The benefits of this plan are: a current income tax deduction equal to the present value of charity’s future remainder interest; lower income until the donor retires; possibly substantial “supplemental” retirement income; and a significant ultimate gift to one or more charitable causes.

Here’s an example: Dr. John Brown, age 50, transfers assets worth $100,000 to a unitrust that will pay him the lesser of the net income or 5% annually (the “unitrust amount”) until 2032 when he will turn 68 (the “triggering event”), at which time the unitrust will “flip” (convert) to a standard unitrust paying him 5% each year. The value of his charitable gift is $26,400. If his $100,000 gift is invested to produce an average annual return of 2.5% yield (income) and 5% capital appreciation until the triggering event, the trust will grow to $244,500 by 2032. His unitrust income will also take a big jump from $3,685 in 2031 to $12,030 in 2032, with potential for that to increase as the value of the trust assets increase in later years.

Dr. Brown can also add to the unitrust in future years---think “charitable IRA”, but without the ceiling on contributions an IRA has---entitling him to additional income tax deductions equal to the value of the charity’s remainder interest in the additions.

For more information, please call us at (502) 489-3533 or toll free in KY at 1(866) 489-3533.

The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.