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Non-Qualified Charitable Trust

 

The Non-Qualified Charitable Trust (NQCT) is a (non-qualified) income distribution charitable trust. It is designed to benefit the grantor’s favorite charity(s) through after death as well as helping to regulate and control the sequences of outright distributions of the trust estate for the benefit of his/her children. It works in a fashion similar as to a qualified Charitable Remainder Trust (CRT). The difference is that with the NQCT the ultimate distributions to charity will not be income tax deductible for taxpayers. Nevertheless, the NQCT allows more flexibility to be built into the grantor’s plan than would a normal qualified charitable trust.

A typical NQCT will be funded at the grantor’s decease with a value of usually one-half of the total trust estate (the other one-half goes to the grantor’s children, outright, immediately upon the grantor’s decease). The one-half value held in trust shall be used to generate income to the grantor’s favorite charity for a pre-selected period of time. After the pre-determined payout period has expired, the remainder value is then distributed outright to the grantor’s children.

A reverse method can be used where all income from the NQCT would be paid out to the grantor’s children for (as an example) 12-15 years (the approximate time it may take for the total value of the aggregate distributions to equal the principal value generating that aggregate income at interest bearing market rates). After the payout period, the remainder amount of the trust is distributed to the charity. The net effect is that the grantor’s children will receive an aggregate income stream over the payout period equal to the full amount allocated, and ultimately distributed, to charity.

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