Benefits of a Private Total Return Unitrust conversion.

March 21st, 2016

  • Modern Portfolio Theory utilizes a Total Return approach which  is the sum of income (dividends and interest) and realized and unrealized capital gains.
    Generally, the terms of the trust specify whether unitrust amounts are to come in whole or in  part from net trust accounting income, in whole or in part from the trust principal account, or whether the settlor has left it  to the trustee to make the call. Absent such guidance, the better view is that the trustee has the default authority to make the unitrust disbursements from the general funds of the trust without regard to distinction between income and principal. See 3 Scott & Ascher, Section 13.2.8.
  • The trustee and the income beneficiaries would know at the beginning of the year the precise amount that would be distributable in the course of the year and can set up automatic monthly or quarterly distributions in a uniform amount.
  • The interests of the life beneficiary and the remainder men are aligned by conversion to the unitrust, everyone is happy!

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