• Charitable Remainder Unitrust
  • January 31, 2004
  • Law Firm: Kaufman & Canoles, A Professional Corporation - Chesapeake Office
  • One type of an estate planning tool is an irrevocable charitable remainder unitrust. The Cedar Point Federal Credit Union saw such a vehicle as an opportunity to benefit its members. They recently asked NCUA if an irrevocable charitable reminder unitrust would be eligible for membership in the credit union. A charitable remainder unitrust is an irrevocable trust that enables an individual to make a charitable donation of money or property effective at a future time, with another person designated in the interim with that person being known as the current beneficiary. The current beneficiary would receive a percentage of the income earned by the donated assets. The current beneficiary may receive the income either for a term of years or for the beneficiary's lifetime. At the end of the specified term, the remaining trust assets go to a designated charity known as the remainder beneficiary.

    The credit union suggested that the settlor and the current beneficiary would be credit union members and that the trustees would be eligible for membership. NCUA concluded that the trust, itself, was not eligible for membership because the beneficiary for the remainder interest would be unknown. However, the credit union was authorized to establish an insured account for the trust.

    NCUA reminded all that a federal credit union may include in its field of membership, in addition to the primary description of the group or groups of individuals eligible for membership, a provision to include "organizations of such persons." NCUA then proceeded to note that they have interpreted such provision to provide the basis for a trust, itself, to be a member if all parties to the trust, including all settlors, beneficiaries, and trustees would be within the field of membership. In the situation proposed by Cedar Point Federal Credit Union, because the remainder beneficiary was unknown, the trust did not, at that time, qualify for membership as an organization of such persons. NCUA did, however, note that once the remainder beneficiary was known, the trust could become a member in its own right if the remainder beneficiary was within the field of membership.

    NCUA further noted that although the trust, itself, did not, at that time, qualify for membership, a federally insured credit union could establish an insured account for the trust under the NCUA rules governing the insurance of irrevocable trust accounts. Irrevocable trust accounts are insurable if either all of the settlors or all of the beneficiaries are members of the credit union. In the case being offered by Cedar Point Federal Credit Union, there was only one settlor who was a member. Accordingly, NCUA concluded that the credit union could establish an account for the trust, even though one of the beneficiaries was presently unknown.