What are Some Examples of Investments that Generate UBTI?

With few exceptions, Charitable Remainder Trusts (CRT) and Charitable Lead Trusts (CLT) should avoid investments that may generate unrelated business taxable income (UBTI). Certain types of investments can be deemed to create debt-financed property in the nature of "acquisition indebtedness" which gives rise to unrelated business taxable income (UBTI).

Here are some examples of investments that either generate UBTI or should be examined carefully to determine whether they generate UBTI:
  • Margin Accounts
  • Partnership Units - including certain publicly traded partnerships
  • Limited Liability Company Interests
  • Real Estate Investment Trusts (REIT)
  • Hedge Funds (i.e., Domestic Hedge Funds)
  • Loans to CRT and CLT
  • Encumbered Real Estate

Of course, this is by no means an exhaustive list. Whenever there is the slightest question about whether an investment may generate UBTI, please consult your legal, tax and investment advisors. 

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