A donor may establish a "flip" Net Income with Makeup Charitable Remainder Unitrust (NIMCRUT) which will pay an annual income to the donor or other designated person for the remainder of their lives. This gift agreement is what we refer to as a split interest arrangement that is partly a gift and partly a contractual stream of annual income to a designated beneficiary.
Take the case of Mr. Lees, who purchased a small office building back in 1988 for $750,000. The property is now worth $1,400,000. He agrees to transfer the building to a "flip" NIMCRUT that he establishes in exchange for a lifetime of net income from the trust. The "flip" event that triggers the initial annual income payment to Mr. Lees is the sale of the building from the trust.
Mr. Lees has provided for an annual net income payment rate of 5.4% from the "flip" NIMCRUT, or an initial annual payment of $75,600 after the sale of the building. The annual net income payment will vary from year to year thereafter based upon the value of the assets in the trust. At the age of 67, his estimated lfe expectancy is 18 more years. He receives an immediate charitable income tax deduction of $635,600. In an income tax bracket of 35%, he’s going to save $222,460 in taxes. The property will no longer be part of his estate and, therefore, won’t be subject to any federal estate taxation. At Mr. Lee's passing, the remainder of the trust's assets will be paid to his favorite designated charity(ies). Sweet.