A properly structured charitable remainder unitrust can be an effective substitute or supplement for traditional retirement planning vehicles. The trust is set up to limit annual distributions to the amount of trust income. Initially, the funds are invested to maximize growth and minimize income. At retirement, the trust's assets are shifted to income-producing investments. Set up in this way, a charitable remainder unitrust offers many of the same benefits as qualified retirement plans, such as current income tax deductions and the ability to accumulate wealth tax free. At the same time, the charitable trust avoids many of the disadvantages of qualified plans, including contribution limits, high administrative costs, mandatory coverage of rank-and-file employees, and penalties for retirement before age 59-and-a-half.
Disadvantages of charitable remainder trusts include limited deductibility of contributions and the loss of assets donated to charity. However, the value of these assets can be preserved for one's heirs through the purchase of life insurance.