Charitable Trusts, Day Seven: The NIMCRUT
We’ve been addressing Split-Interest Trusts recently; those are unique types of trusts that are established to benefit both charitable and non-charitable recipients. These types of trusts would be a match for you if you have both philanthropic and family needs to attend to; if you both want and need to care for your family, but you also want to take advantage of the tax breaks you’d receive from setting up some form of Charitable Trust.
The final type of Split-Interest Charitable Trusts we’ll cover today; it’s known as the Charitable Remainder Unitrust with Net Income Make-up Provisions (“NIMCRUT.”) NIMCRUT is one heck of a name, isn’t it? Well, it can also provide for one heck of a trust, too. I’ll explain.
To understand any of this trusts, you must first understand the Charitable Remainder Trust, which I’ll quickly recap:
In the simplest of terms, a Charitable Remainder Trust.is nothing more than a irrevocable trust that is created to reduce taxes. First it provides funds for named beneficiaries for a specific period of time, then, after that specific period of time, the remainder of the trust is given to a pre-designated charity.
The assets of a Charitable Remainder Trust are ultimately donated to charity, but until that time, the trusts’ grantor has the benefit of being able to use the assets as they see fit.
Charitable Remainder Trusts give money to non-charitable beneficiaries first—meaning the non-charitable beneficiaries reap the lead interest. Once the lead interest period is complete, the remainder of the assets in the trust are given to the pre-determined charity or charities of the grantor’s choosing.
The benefit of this type of trust is twofold: the grantor both avoids the burden of capital gains tax on the gifted assets, as well as enjoying an income tax deduction for the fair market value of the remainder interest that the trust earned in the meantime.
Charitable Remainder Unitrusts with Net Income Make-up Provisions (“NIMCRUTs”) are a type of trust that allows you to provide income to yourself or others for life, or a fixed term, and to receive a tax deduction while doing so.
A NIMCRUT pays interest income for life (or, again for a fixed term) to a non-charitable lead-interest beneficiary. The remainder of the interest is ultimately given to a charity.
The NIMCRUT doles out a specified percentage of its value annually. The non-charitable lead-interest beneficiary receives only the interest and dividends earned by the trust for the current year.
NIMCRUTs are not the kind of thing you want to dabble with on your own; if you believe one might be a fit for you, please see a qualified estate-planning attorney.
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