| |
| Agreements |
 |
"Flip" Unitrust
A "flip" unitrust
begins by distributing net income and then changes to distribute a percentage of
the value of the assets. The change is triggered by a date, or an event, or sale
of an asset like a house.
"Flip" unitrusts are well tailored for two situations:
- If you want to delay most of your income to a later date, such as your or your children's retirement, or
- If the asset you use to establish the trust must be sold before the trust can make distributions.
For example, you may want the trust to minimize its distributions until you or your child reaches age 65. We will invest for growth until this time. Or, you may want to give us a house, which we will sell for you. While the house is on the market, we will delay making distributions to you. Once the house is sold, the trust will begin to make regular distributions.
Here is An Example:
"How Can I Convert My House Into an Income Stream?"
Mrs. Suminaga, age 80, has lived in her house for many years. Now she would like to move to a retirement community, but she would like to avoid the capital gain that she would have to pay if she sold the house herself. The house is worth $550,000 now, and she bought it for $50,000.
She decides to give the house to Pomona to establish a "flip" unitrust. This is a type of trust that distributes the income that it earns, if any, until the funding asset is sold. After that, it distributes a fixed percentage of the value of the assets. This type of trust is appropriate for real property because it allows the trust to delay making distributions until the property has been sold and the assets reinvested. Mrs. Suminaga decides on a distribution rate of 7% for her trust.
The College prepares the deed and the trust document for Mrs. Suminaga without charge, and it undertakes all the burden of selling the house. It asks Mrs. Suminaga to pay for any expenses associated with the house, such as insurance, gardening, maintenance and repairs, until the property sells.
In the first several months, while the College sells the house, the trust makes no distributions to Mrs. Suminaga. On January 1 after the sale, it begins to distribute 7% of the value of the trust assets to her. If the College sells the property for $500,000 after paying selling costs, the distribution will be $35,000 on an annual basis in the first year. After that, the amount of her distribution will depend on the value of the assets on January 1 each year.
Mrs. Suminaga will be able to claim a charitable deduction of over $327,000.
Please contact us for more information on your particular situation.
· Return to Agreements | Pomona Plan Home | Contact Us
|
|
|
|
