IRA transfers to CLAT

IRA transfers to CLAT

Forum topic posted in Forum, Retirement Plans on 15 December 2010| 5 comments
audience: | last updated: 15 December 2010
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Joined: 10/07/2010
Points: 45
I would like to mak a transfer from an IRA to a CLAT. I want to know what the implications of are from the standpoint of whether it will create a taxable event. The principal invested would be completely given to the 501(c)3 over the term of the CLAT. What ever remained would then go into a 529 for my grandchildren. Does anyone have any answers?

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Joined: 06/08/2006
Points: 30
IRA charitable rollover - not for life-income gifts
Pastor, the restored rollover provision that allows IRA transfers to be excluded from your gross income cannot be used to fund life-income gifts such as a charitable trust or gift annuity.
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Joined: 08/25/2008
Points: 15
IRA Charitable Rollover
Emily, Understood... but one would think the law would allow the transfer to a life income gift with a caveat of simply taxing all income as ordinary as distributed. Makes sense for the IRA transforer and Uncle Sam still gets their "Ceasar's"...share.
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Joined: 03/09/1999
Points: 90
IRA to CLAT
A charitable lead trust is a taxable trust, I don't see any advantage to contributing an IRA to this trust. I do, however, often suggest that a CRT be used as a beneficiary of an IRA to clean up loose ends, provide an ongoing income stream for both spousal and nonspousal beneficiaries (within the constraints of gift/estate tax limitations), and to take advantage of the 4 tier accounting system for payments which would change distributions from all ordinary to more favorable capital gains if the trusts was properly invested over time. Vaughn W Henry gift-estate.com
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Joined: 10/07/2010
Points: 45
What I was looking for is a
What I was looking for is a way to avoid the income tax on the IRA. If I were to gift the IRA to a 501(c)3, I would avoid paying the income tax on the IRA. If I could use a Charitable Lead Trust, the the charity would benefit and so would my heirs. Just a thought.
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Joined: 11/27/2006
Points: 30
IRA Transfers to CLAT
The initial "transfer" from the IRA, regardless of whether it is distributed directly from your IRA adminstrator to the CLAT, will be treated as a withdrawal by you and taxed as ordinary income. The tax implications at that point will be the same as any contribution to a CLAT -- those implications are based on a snapshot taken at the time you establish the CLAT (factors include the AFR rate, trust term, etc.) and don't depend on whether in fact the entire principal ultimately is given to the charity over the trust term. I haven't looked at the tax laws surrounding contributions to 529 plans recently, but you need to be very careful about the possible generation-skipping transfer tax implications of having the CLAT remainder directed to or for the benefit of your grandchildren. You are not permitted to allocate GST exemption to a CLAT until the trust term ends, which means that you can't "zero out" the GST tax when you set up the trust. If the trust grows quite a bit, you could have GST tax owed when the trust terminates.
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