Establishing a trust creates financial security for the years ahead, but you must have a strategy behind your decision. Not all trusts are created equal. Your personal and financial goals will dictate which type of trust is the savviest move for the future.
Both the NIMCRUT and CRUT have unique advantages, so you’ll need to consider which one is the right fit. How will you decide between a NIMCRUT vs CRUT?
This detailed guide to the differences between these two popular trusts will help inform your conversations with your financial advisor.
What is a CRUT (Standard Charitable Remainder Unitrust)?
The first type of trust you may encounter is a standard charitable remainder unitrust, also known as a CRUT. This basic type of trust will have some variations, but the standard option is still viable for many people.
In aCRUT, you will take assets out of your taxable estate and place them within the tax-exempt trust. Beneficiaries (which can include yourself or a loved one) will receive distributions from the trust. Meanwhile, the remainder of the trust will be given to a charity of your choice, with a required minimum of ten percent of the trust’s value.
The CRUT payout percentage is fixed from the start of the trust, even though the funds inside the trust can vary from year to year. One benefit of a CRUT is that it allows you to take immediate tax deductions and forgo capital gains taxes on the sale of assets included within the trust.
What is a NIMCRUT (Net Income with Make-Up Charitable Remainder Unitrust)?
NIMCRUTs are a type of charitable remainder unitrust that have some of the same benefits as a standard charitable remainder unitrust but some features that are unique to them. Net Income with Make-Up Charitable Remainder Unitrusts also allow you to remove assets from your estate and provide beneficiaries with a long-term income source.
NIMCRUTs allow the deferral of income in the earlier years to be “made up” in later years. Perhaps the trust is holding closely held stock with limited dividends, but then it is later sold when the company is sold. The income that should have been paid out (but wasn’t) is recalculated to be paid out in future income payments – thus potentially increasing those payments.
But what happens if the trust does not earn enough to payout?
Instead, beneficiaries will receive the income that the trust does have. If it earns more than they can withdraw annually, the balance remains in the trust and can be paid out in the future, giving you “net income.”
At the end, a portion of the trust is still distributed to the charity of your choice, the minimum of which is 10% as calculated at the inception of the trust.
Standard CRUT vs NIMCRUT Comparison
Understanding the nuances of both types of trusts is essential to making the right decision for you or your beneficiaries. Whether you want to prioritize a steady income stream or protect your principal for years to come, you need to know where each one shines.
This table will help you weigh which one you should consider for a bright financial future.
Feature | Standard CRUT | NIMCRUT |
Income Stream | Consistent & Mandatory. Starts immediately. | Variable & Deferred. Can be "turned on" later. |
Principal Protection | Can be eroded to meet payout obligations. | Principal is protected until income is generated. |
Growth Potential | Moderate. Payouts can limit growth. | High. Assets can grow tax-free without payouts. |
Best for... (Asset) | Liquid assets (stocks, bonds, cash). | Illiquid assets (real estate, private stock). |
Primary Strategy | For immediate cash flow. | Growth now, income later. Ideal for retirement. |
Flexibility | The payout structure is fixed, begins immediately. | Payout is flexible. It can function like a retirement account. |
Tips to Choose Between CRUT and NIMCRUT
With the basics sketched out, you will have to consider which features offer the most benefit for your unique needs. The right charitable remainder trust depends on your specific situation and portfolio, but these general guidelines will help you in the initial setup phase.
When Do You Need Income?
Some people will want to start dipping into the financial benefits of their trust right away, while others can wait for years before they need a source of income. A CRUT is often ideal for someone who requires an income stream right away. On the other hand, NIMCRUTs allows you to wait five, ten, or even twenty years before you start to pull distributions.
What Assets are You Funding the Trust With?
Take a moment to think about which assets you would like to remove from your estate and use to fund your trust. If you primarily intend to contribute public stocks or cash, then a CRUT is often the best move.Real estate and private businesses are ideal for NIMCRUT contributions.
What’s Your Financial Objective?
Your goals for the future should be a guiding light for your trust. If you want a predictable cash flow, CRUTs may be the right move. NIMCRUTs are more suited for long-term wealth with a future income stream.
Get Advice on Your Trust Strategy with Magellan
Magellan is here for you when you have questions about which type of trust suits your unique goals and financial situation. Our experts provide comprehensive estate, financial, legal, and tax planning services all under one roof so that you get the charitable remainder trust best for your needs.
Schedule a time to talk with one of our advisors today!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.