A net income with makeup charitable remainder unitrust
(“NIMCRUT”) also pays an annually varying unitrust
amount (income stream) to the non-charitable income beneficiary,
limited however to net income earned by the trust each year.
The annual payout by a NIMCRUT is the lesser of:
- The unitrust amount as computed for the CRUT, or
- The actual net income earned by the trust for the year.
Because a NIMCRUT computes an annual unitrust amount just
like a standard CRUT, any shortfalls in paying out that unitrust
amount, because there was insufficient trust net income to
do so, are recorded in the trust’s “makeup”
account and may be available for distribution to the income
beneficiary in future years assuming that there is sufficient
net income to make such payments.
As an example, assume that the NIMCRUT value as of January
1, 2005 is $500,000 and the trust instrument calls for a 7%
pay-out, then the unitrust amount for 2005 will be $35,000.
However, assuming that the trust only earns net income amount
of $20,000 in 2005, the actual amount paid to the income beneficiary
will be limited to $20,000. The difference between the unitrust
amount ($35,000) and the net income ($20,000) of $15,000 will
be recorded as a distribution deficiency in the trust’s
makeup account, possibly to be distributed at a later date.
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