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Home > Definitions & Designations > What is a Charitable Remainder Unitrust with Net Income Make-up Provisions (“NIMCRUT”)?

What is a Charitable Remainder Unitrust with Net Income Make-up Provisions (“NIMCRUT”)?

Estate Planners | Monday, February 28th, 2011

One estate planning tool that is viable for a number of different donors is the charitable remainder unitrust with net income make-up provisions. This type of trust will allow you to transfer assets to a charitable trust and then receive income from those assets for your lifetime, or for a period of years that you specify. Upon your death, or at the termination or expiration of the trust, your charity (church, non-profit or other) will receive the remainder of the assets in the trust in full.

This type of trust requires that a fixed percent of the trust’s assets annual value be credited to the income beneficiary (you, or whoever you designate as the beneficiary), at a minimum of five percent. If the trust has not made enough money to pay that amount, the deficient amount is made up in later years when the trust has more income or income that is in excess of the required set percentage for preceding years.

When a deferred annuity contrast is utilized for funding of a net income with make-up charitable remainder unitrust, then the trustee has full discretion as to the timing of the payouts or distribution of trust income, and thus, unlike other charitable remainder trusts, this type of trust can allow for income to build up. For this reason, funding the trust with an annuity allows for more flexibility and control of income. And because the trust has exemption from tax, the buildup of income is also not taxable.

It is important to note that unlike other charitable remainder trusts, the net income with make-up charitable remainder trust will not allow for the principal to be invaded in order to pay out income to the beneficiary. If the income within the trust is not sufficient to meet the amount of payout, the beneficiary will have to wait until a time when the income exists to make the payment. Nonetheless, until that time, the beneficiary’s funds will accrue, and once the income is sufficient to pay the beneficiary, the beneficiary will receive the entire built-up income within the account.

The ideal donor for a net income with make-up unitrust is a person who does not need the income immediately and who can sustain themselves with other sources of income in the interim during periods when the trust may perform at a level that is less than expected. Typically, if income is anticipated to begin within five years, this type of trust is not the right trust instrument for the donor. For those who are not in immediate need of income and who can live comfortably without the payout from the trust, the NIMCRUT is a viable trust instrument.

The best way to determine the right type of charitable trust for your particular situation is to work closely with an estate planner who can give you personalized advice on the type of trust that will meet your needs and goals.

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