Unitrust: A Comprehensive Guide to Its Legal Definition and Function
Definition & Meaning
A unitrust is a specific type of trust that pays a beneficiary a fixed percentage of the trust's net fair market value each year. The value of the trust is assessed annually, and the payment amount adjusts based on the trust's performance. The donor transfers assets into the trust while retaining the right to receive payments for a designated period. After this term concludes, the remaining assets are distributed to a designated public charity. This structure allows for potentially increasing or decreasing payments based on the trust's value.
Legal Use & context
Unitrusts are commonly used in estate planning and charitable giving. They fall under the category of trusts in civil law and are often utilized to provide income to beneficiaries while also supporting charitable organizations. Individuals can create unitrusts to manage their assets effectively and ensure that a portion of their estate benefits a charity after their passing. Users can manage the creation of unitrusts using legal templates available from US Legal Forms, which can simplify the process.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A donor establishes a unitrust with an initial value of $100,000, specifying a payout of six percent. Each year, the trust is valued, and the beneficiary receives $6,000 if the trust's value remains the same. If the trust increases to $120,000 the following year, the beneficiary would receive $7,200.
Example 2: A donor creates a unitrust that pays five percent annually. If the trust's value declines to $80,000, the beneficiary would receive $4,000 for that year. (hypothetical example)