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Understanding and Leveraging Unitrusts

As the world of finance continues to evolve, individuals seeking innovative ways to manage their assets and secure their financial future have turned to various trust structures. Among these, the unitrust has emerged as a flexible and advantageous option for many investors. Unitrusts offer a unique approach to wealth management that provides a range of benefits for both the beneficiaries and the creators of the trust. In this article, I will explore what unitrusts are, how they work, and the benefits they offer.

What is a Unitrust?

A unitrust is a type of irrevocable trust. It is a legal arrangement where assets are placed in trust for the benefit of one or more beneficiaries. The distinguishing feature of a unitrust is its income distribution mechanism. Unlike other types of trusts, a unitrust distributes a fixed percentage of its assets' fair market value to the beneficiaries each year, typically ranging from 3% to 5%.

This characteristic sets unitrusts apart from traditional income trusts, such as fixed annuities or standard discretionary trusts, which distribute income based on the actual income earned by the trust's assets.

How Does a Unitrust Work?

The unitrust is created through a formal legal agreement, wherein the grantor (the person establishing the trust) transfers assets, such as cash, securities, or real estate, into the trust. The grantor may receive a charitable income tax deduction for the value of the assets transferred, subject to IRS rules and regulations.

Once the unitrust is established, the trustee takes over the management of the trust's assets, investing them to generate income and grow the principal. At least annually, the unitrust distributes a predetermined percentage of the trust's assets to the beneficiaries.

Benefits of Unitrusts:

  1. Flexibility and Potential for Growth: Unlike fixed annuities or other traditional income trusts, which may limit potential growth, unitrusts provide the potential for significant asset appreciation. Since the distribution percentage is based on the trust's assets' fair market value, the beneficiaries can benefit from any increase in the trust's value.

  2. Diversification Opportunities: Unitrusts allow for the diversification of the trust's assets, enabling the trust to invest in a broad range of assets, such as stocks, bonds, real estate, and more. Diversification can help manage risk and enhance returns over the long term.

  3. Income Stream and Tax Efficiency: Unitrusts offer beneficiaries a stable income stream over time. Additionally, depending on the circumstances and the specific provisions of the trust, the income distributions may be taxed at favorable rates, reducing the tax burden for both the grantor and the beneficiaries.

  4. Charitable Giving and Tax Benefits: One significant advantage of unitrusts is their ability to support charitable causes. Grantors can name charitable organizations as beneficiaries, and any assets transferred to the trust can generate a charitable income tax deduction. This deduction can be especially advantageous for high-net-worth individuals looking to reduce their taxable estate.

  5. Control and Legacy Preservation: With unitrusts, grantors can maintain a degree of control over how their assets are managed and distributed even after their passing. They can dictate the terms of the trust, specify the beneficiaries, and set the percentage of income distributions. This allows individuals to leave a lasting legacy while still providing for their loved ones and charitable causes.

  6. Blended Family? No Problem!: One of the biggest challenges that blended families face is the inheritance of the second spouse at the detriment of the children. Say, for example, husband wants to leave to second spouse, of 20 years, a good chunk of the assets he earned during their marriage. However, husband's children feel differently. Wife 2 can use up the money, taking all of the income, and not grow it. In comes the unitrus! It will encourage Wife 2 to invest the money so it grows. The more it grows, the more money she gets! The more it grows, the more the secondary beneficiaries, i.e. the children, will receive.


Unitrusts are powerful financial tools that offer numerous benefits for both grantors and beneficiaries. Their flexibility, potential for growth, diversification opportunities, and tax efficiency make them an attractive option for individuals looking to protect and grow their wealth while providing for their loved ones and charitable causes. However, setting up a unitrust can be complex, involving legal and financial considerations. Therefore, it is essential to consult with experienced professionals to ensure that the unitrust aligns with your specific financial goals and objectives. Call us today and learn more!

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