Christendom College benefactors, Dr. and Mrs. Robert Kling, of Alexandria, Va., recently discovered a way to provide investment income from a piece of real estate they owned to use for possible health care needs in their future, and at the same time, a way to both avoid payments to Uncle Sam and make a generous gift to Christendom College. The solution they found is called a flip charitable remainder unitrust.
“Though income may also be generated for a fixed term only, the Klings elected to arrange the income payments for their lives,” says Vice President for Advancement John F. Ciskanik. “With a simple signature, they irrevocably transferred their real estate to a trust, which is managed today by trustees of their choosing. Since Christendom is named as the remainder beneficiary, the Klings receive a generous income tax deduction, in return for the transfer.”
During the unitrust’s term, the trustees invest the unitrust’s assets. Initially, the trustees distribute the lesser of the unitrust’s net income or a stated percentage of its value, as revalued annually, to Dr. and Mrs. Kling. This “net income” feature guarantees that trust principal is not invaded to make a distribution during the time the real estate is still held by the trust.
“The method used to determine the amount of these payments ‘flips’ upon the occurrence of an event stipulated in the trust instrument,” continues Ciskanik, “in the Kling’s case, the sale of real estate held by the trust.
Incidentally, other events, such as the arrival of a specific date or a single event whose occurrence is not within the control of the trustee or anyone else—like a marriage, death, or birth—may also ‘flip’ the trust payment instructions.”
The practical impact of the “flip” is to allow distributions to be made to the benefactors in the form of cash payments. After the “flip,” if the unitrust’s value goes up (goes down) from one year to the next, its payout increases (or decreases) proportionately.
“When the Kling’s unitrust term ends, the principal will pass to Christendom College,” says Ciskanik, “to be used in support of our mission of providing the best Catholic liberal arts education. Unitrust donors may add funds to a unitrust whenever they want.”