Unitrust Distributions

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 12, 2023

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Unitrust Distributions: Overview

Unitrust distributions play an essential role in estate and charitable planning, offering tax benefits and a reliable income stream for beneficiaries.

A unitrust, or charitable remainder unitrust (CRUT), is a type of irrevocable trust that provides an annual income stream to its beneficiaries, based on a percentage of the trust's assets.

Upon termination of the trust, the remaining assets are distributed to one or more designated charitable organizations.

Unitrust distributions serve a dual purpose: providing income for beneficiaries and supporting charitable organizations. The trust allows for potential growth of assets, resulting in increased income over time. Tax benefits include income, capital gains, and estate tax deductions.

There are four main types of unitrusts, each with its unique features and distribution methods:

    1. Standard Unitrust
    2. Net Income Unitrust
    3. Net Income With Makeup Unitrust
    4. Flip Unitrust

Establishing a Unitrust

Setting up a unitrust requires careful planning and adherence to specific eligibility requirements.

Eligibility Requirements

To establish a unitrust, the trust must meet the requirements set forth by the Internal Revenue Service (IRS). These include a minimum payout rate, a qualified charitable remainder beneficiary, and proper trust documentation.

Process of Setting up a Unitrust

The process involves three main steps:

    1. Choosing a trustee: A trustee is responsible for managing the trust assets and making distributions. This can be an individual, a financial institution, or a combination of both.
    2. Drafting a trust agreement: A trust agreement is a legal document outlining the terms of the trust, including the distribution rate, beneficiaries, and termination provisions.
    3. Funding the trust: Trust assets can include cash, securities, real estate, or other property.

Tax Implications and Benefits

Unitrusts offer various tax benefits:

  • Charitable deductions: Donors may claim an income tax deduction for the present value of the remainder interest that will eventually go to the charitable beneficiary.

  • Capital gains tax: Assets transferred to the trust can be sold without incurring immediate capital gains tax.

  • Estate tax: The trust assets are removed from the donor's estate, reducing potential estate taxes.

Calculating Unitrust Distributions

Several factors determine the amount of unitrust distributions:

Distribution Rate

The distribution rate is a percentage of the trust's assets paid out annually. Factors affecting the rate include the trust's purpose, beneficiaries' needs, and the donor's tax objectives. The IRS sets minimum and maximum allowable rates.

Valuation of Trust Assets

Trust assets must be valued annually, using either the fair market value or an alternative valuation method approved by the IRS.

Payout Frequency and Timing

Distributions can be made annually, semi-annually, or quarterly. Payment deadlines are typically set by the trust agreement.

Income and Principal Distributions

Unitrust distributions can consist of income and principal from the trust's assets.

Types of Income

Income generated by the trust can include interest, dividends, rents, and capital gains.

Distribution of Income and Principal

Distributions are usually made in the form of a pro-rata share of income and principal. Ordering rules determine which types of income are distributed first.

Beneficiaries of Unitrust Distributions

Unitrusts can have both individual and charitable beneficiaries.

Individual Beneficiaries

Non-charitable beneficiaries receive income from the trust, while charitable beneficiaries receive the remaining assets upon trust termination.

Duration of Beneficiary Interest

The interest of a beneficiary in a unitrust can be for a specific term of years or for the lifetime of the beneficiary.

Rights and Responsibilities of Beneficiaries

Beneficiaries have different interests in a unitrust:

  • Income interest: The right to receive income distributions from the trust during the term or their lifetime.

  • Remainder interest: The right to receive the remaining trust assets upon termination of the trust.

Termination of a Unitrust

Unitrusts can be terminated under specific conditions.

Conditions for Termination

Common conditions for terminating a unitrust include the expiration of the trust term, the death of the beneficiary, or at the trustee's discretion.

Distribution of Remaining Assets

Upon termination, the remaining assets are distributed to the designated beneficiaries:

  • Non-charitable beneficiaries: May receive any remaining income interest or principal, depending on the trust agreement.

  • Charitable remainder beneficiaries: Receive the remaining trust assets as a charitable gift.

Tax Implications of Termination

The termination of a unitrust may have tax implications, including potential capital gains or income tax liabilities for beneficiaries.

Challenges and Considerations

Several challenges and considerations are associated with unitrust distributions.

Market Volatility and Its Impact on Distributions

Market fluctuations can affect the value of trust assets and, consequently, the amount of distributions.

Maintaining the Balance Between Income and Principal

Trustees must manage assets to provide a consistent income stream for beneficiaries while preserving the principal for the charitable remainder beneficiary.

Regulatory Compliance and Reporting Requirements

Trustees must ensure compliance with all regulatory and reporting requirements, including filing annual tax returns and providing necessary documentation to beneficiaries.



Unitrust distributions serve as an essential tool in estate and charitable planning, offering both income for beneficiaries and support for charitable organizations.

The process of establishing a unitrust involves meeting eligibility requirements, drafting a trust agreement, and funding the trust.

Tax benefits, such as charitable deductions, capital gains tax advantages, and estate tax reduction, make unitrusts an attractive option for donors.

Understanding the factors that determine unitrust distributions, such as distribution rates, valuation of trust assets, and payout frequency, is crucial for effective trust management.

Beneficiaries, both individual and charitable, have distinct interests in a unitrust, which can last for a term of years or the beneficiary's lifetime.

The termination of a unitrust involves distributing the remaining assets to the designated beneficiaries and may have tax implications.

As unitrusts require balancing income and principal while navigating market volatility and regulatory compliance, it is essential to consult with financial and legal professionals for guidance.

By carefully considering the various aspects of unitrusts, donors can establish and maintain a trust that meets their individual needs and objectives while supporting their chosen charitable causes.

Unitrust Distributions FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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