A charitable remainder unitrust ("CRUT") provides a donor with a payment  based on a percentage of the fair market value of the trust assets, as revalued yearly. Therefore, if the value of the trust principal increases, so does the donor’s payout from the CRUT. The donor of a CRUT will receive an income tax deduction equal to the present value of the charitable remainder interest and be able to bypass capital gain (if applicable). The donation amount is calculated according to IRS valuation tables.

Types 

There are several types of CRUTs. The trust's different characteristics offer a number of planning opportunities, depending on the donor’s specific circumstances. The most common types are:

Straight Payout Unitrust

This CRUT pays to the beneficiary a fixed percentage of the value of the trust’s assets. The amount paid is not dependent on the income produced by the trust, but is determined by multiplying the percentage payout rate by the fair market value of the trust assets, as valued annually. In years when there is little or no income, the principal of the trust must be invaded to provide for the fixed distribution requirement. The amount paid increases or decreases based on the annual re-valuation of the assets.

Net Income Charitable Remainder Trust

This type of CRUT pays the beneficiary a distribution of either (a) the specified fixed percentage or (b) the net income of the trust; whichever is less. Unlike the straight payout CRUT, this trust does not allow the trustee to invade the principal to make a payment. Net income CRUTs are often used to handle real estate because there is no fixed distribution requirement, which gives the trustee time to sell the property. A net income CRUT can be a good way to donate appreciated property and turn it into an income stream coupled with tax benefits.

Net Income with Make-Up

In addition to a normal net income CRUT, a donor may also add a “makeup provision" to the trust. This allows a donor to receive more than the fixed percentage of the assets in the years when the trust's income is more than the fixed percentage payout. The "excess" income can be distributed to make up for shortfalls in prior years when the unitrust income was less than the percentage payout.

Flip Unitrusts

This unitrust starts out as one which each year pays the smaller of the trust net income or the fixed unitrust percentage. Upon the happening of a specified event, or on a certain date, the unitrust "flips" and becomes one which pays the set percentage only. This type of unitrust is useful if the trust is funded with assets that do not immediately pay income, such as vacant land. Once the land is sold (which is the event which flips the unitrust) there are now liquid assets in the trust to invest, which yield income to pay the unitrust payout.