Flip Unitrust

Named for the "flip"provision that allows you to defer most of your income payments until a later date, the FLIP Unitrust is an excellent gift plan when you want to donate non-liquid or hard-to-value assets, such as real estate or closely held stock, and receive income in return. It is also an excellent supplemental retirement plan.

How Does It Work?

A FLIP Unitrust is a form of Charitable Remainder Unitrust. Unlike a standard unitrust that pays a percentage of the fair market value of the assets to the income beneficiaries, the FLIP Unitrust defers income until a future time when the income switch “flips” on. Until that pre-determined time, the trust pays net income only. If no net income is produced, the trust pays nothing to the income beneficiaries. Once the “flip” event occurs, the trust converts or “flips” to a standard Unitrust that pays a defined percentage of the fair market value of the assets to the beneficiaries beginning at the next valuation date.

This "flip" feature is beneficial for gifts of non-liquid or hard-to-value assets. By defining the "flip" event as the sale of the asset, the trust pays little or no income until the asset is sold. This protects the trust from having to pay income when its assets are in non-liquid form. Once the asset is sold and the trust becomes liquid, the trust "flips" to a standard unitrust.

The FLIP Unitrust also helps to build a supplemental, tax-deferred retirement plan. The "flip" feature allows you to donate assets now, but defer or limit income payments until the date of your retirement. In the meantime, you can sit back and watch the principal in the trust grow tax-free until your income payments begin.

What Are the Advantages?

• You can contribute hard-to-value or hard-to-market assets where the timing of the sale and the sale price are uncertain.
• You can use a FLIP Unitrust as a supplemental retirement plan that grows your assets on a tax-deferred basis until you need them later.
• You can take an income tax deduction now, while deferring the income.
• You can fund the trust with highly appreciated assets, allow the trust to diversify the assets tax-free, and avoid all capital gains tax you would have owed if you sold the assets yourself.
• You make a substantial gift to Columbia.

Example

A 55-year-old donor contributes $100,000 of appreciated stock with a cost basis of $10,000 to a FLIP Unitrust that pays no income until it "flips" in 10 years at retirement, at which time it begins to pay 5 percent of the fair market value of the assets. The trust is invested in growth stocks with 8 percent capital appreciation and no income until the "flip" event, and then is re-invested in a more conservative "balanced" fund that produces 5 percent capital appreciation and 3 percent income. Assume IRS Discount Rate of 5.4 percent for charitable deduction calculation.

Trust principal	$100,000
Income tax deduction	$33,964
Income tax savings (34 percent bracket)	$11,549
Cap. gains tax savings (15 percent)	$13,500
Income (year 11)	$7,945
Projected after-tax benefit to income beneficiary	$186,024
Projected benefit to Columbia	$267,543

N.B.: Consult legal and tax advisors before making any decisions based on this information.

For More Information

If you are considering a FLIP unitrust, e-mail us, complete the personal illustration form, or call us at 800-338-3294.

PLEASE NOTE: Gifts of appreciated securities and other property must have been held by the donor for one year in order to receive a full fair market value tax deduction.