Income Beneficiaries of a CRT

Income Beneficiaries of a CRT

Forum topic posted in Forum on 27 September 2010| comments
audience: | last updated: 27 September 2010
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Joined: 12/17/2009
Points: 30
Two questions: 1) In a 20 year term testamentary CRAT, if there is one non-charitable income beneficiary, can a charity be named an additional income beneficiary? 2) If a charity can be named one of the income beneficiaries, what are the tax ramifications? Does the estate receive an estate tax deduction equal to the present value of the remaining income payments? Any income tax ramifications for the estate? Thank you for your feedback. -Darrin goldind@ujafedny.org

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Joined: 08/29/2002
Points: 45
CRT Income Beneficiary
Charity can be an additional income beneficiary. The donor will not receive an additional income tax deduction for the income beneficiary piece. Additionally, if charity is a permissible income beneficiary of the CRT, the document must include all four private foundation restrictions (prohibitions against jeopardizing investments and excess business holdings must be added to the self-dealing and taxable expenditures prohibitions). Perhaps a better transaction would be to craft a charitable lead trust to run in tandem with the CRT to the extent income distributions to charity are desired. Alternatively, you could name exclusively non-charitable income beneficiaries of the CRT and then periodically have the income beneficiary accelerate the remainder interest, giving funds to the charity(ies), which generates an additional income tax deduction for the income beneficiary. One other comment: You noted it is a 20-year testamentary CRAT. I understand using CRATs for older folks mostly worried about losing money, but if the beneficiary is younger, the CRAT is a somewhat unusual choice given the lack of an inflation hedge/participation in market upside. Matt Brown Partner Brown & Streza LLP Attorneys at Law Estate Planning - Business Planning - Income Tax Planning - Charitable Sector - Mergers & Acquisitions 8105 Irvine Center Drive Suite 700 Irvine, California 92618 949.453.2900(o) 949.453.2916(f) 949.453.2901(d) 949.922.3851(m) Matt.Brown@brownandstreza.com http://www.brownandstreza.com
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Joined: 04/30/2002
Points: 4
RE: Income Beneficiaries of a CRT
Question 1: The only explicit requirement regarding the income beneficiaries of a CRT is that at least one of the beneficiaries must be someone other than a charity. See IRC Sections 664(d)(1)(A) and 664(d)(2)(A).

Question 2: This question is addressed by Private Letter Ruling 200108035. GiftLawPro summarizes this PLR nicely in Section 8.2.2: "The Service went on to hold that Taxpayers would be entitled to a charitable income and gift tax deduction for the present value of the remainder interest. However, they would not be entitled to an additional income tax deduction for the value of the income stream paid to charity. Any additional income tax deductions related to the income payments would flow to the CRUT itself under Sec. 642(c). Conversely, Taxpayers would be entitled to additional gift tax deductions for the income paid to charity because the CRUT's income stream is a "deductible interest" under the gift tax regulations."

Hope this helps.

Jeff Drollinger, CFP, EA
CRTPro LLC
www.crtpro.com
7520 Rates: October 2.2% September 2.4% August 2.4%

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