Cannon Certified Trust And Fiduciary Advisor (CTFA) Practice Test

The key idea is how a Charitable Remainder Unitrust determines its annual payout. A unitrust pays a fixed percentage of the trust’s annual fair market value to the income beneficiaries, and that value is recalculated each year. So the actual dollar amount received can go up or down depending on how the trust’s assets perform, while the percentage itself stays the same. The remaining value of the trust eventually passes to charity. This is what makes the unitrust description correct: you’re not getting a set dollar amount each year; you’re receiving a percentage of the trust’s value each year, with the remainder to the charity. For contrast, a fixed dollar payout describes a Charitable Remainder Annuity Trust, where the payment is constant each year regardless of how the trust’s value changes. And the payout isn’t limited to a lifetime to one person; a unitrust can be set up for a life or for a term of years and can involve one or more beneficiaries, with the amount changing as the trust’s value changes. The idea that the payout cannot be changed is not accurate because the actual cash received will vary with the trust’s annual value.