Grantor CLT

Grantor CLT

Forum topic posted in Forum on 21 July 2010| comments
audience: | last updated: 21 July 2010
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Joined: 07/20/2010
Points: 31
in a grantor CLT funded with income property; and where the charity is to receive the income as an annual gift; and after five years, the property is returned to the donor, what tax deductions can the donor expect? If the annual income/gift is $60,000, can the donor take a $300,000 tax deduction in year one, carry it over for five more , or have the option to take the $60,000 deduction each year? Dennis

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Joined: 05/07/2008
Points: 15
Source of CLT deductions
Perhaps I am grossly misled, but I find no evidence for any tax deduction based on the value of assets transferred nor the value of the remainder interest. The tax deduction for a qualified grantor CLT is the present value of future payouts to charity, subject to the 30% limit (by definition). The *20%* limit has nothing to do with the distinction between "to" and "for the use of," and everything to do with the nature of the property. Certain kinds of capital gains property have a 20% limit. For ordinary charitable contributions to 50% limit organizations (publicly supported charities), gifts "for the use of" the organization invoke the *30%* limit, not the 20% limit. The 30% limit is also invoked for organizations that do not qualify for the 50% limit. The 20% limit is further trigged, as I have said, not by whether the gift if "for the use of," but by whether it is capital gains property given to something other than a qualified public charity. A CLT is "something other" (hence the standard 30% limit for CLT contributions). (See IRS Pub 526) A CLT is already a 30% organization, so the "for the use of" problem is not relevant. "By definition": CLTs are defined as qualifying for only a 30% limit regardless of the nature of the charity. They are resrtricted uniformly by the 30% limit, unless capital gains property invokes the 20% limit. I BELIEVE, but am not certain, that the donor may not take the tax deduction (based on present value of future payouts) annually; it must be taken in the first year, subject to carryover (and even that should be double-checked in each taxpayer's case). Keep in mind, further, that the donor is taxed on the income of the CLT, apart from any consideration of payment amounts. Given the lack of any tax deduction in the second and further years, this severely limits the long-term tax utility of a CLT. The benefit to the donor will be derived from other sources. A CLT can be wise in the year of retirement if subsequent years are expected to produce substantially lower personal income (going from salary to pension, for instance). Otherwise the benefit of a grantor CLT accrues mostly to the charity, with the knowledge of regular payments, and the further security as to the amount of payment provided if the CLT is an annuity trust. A corresponding benefit to the donor is knowing that he or she will not be harrassed by fundaisers such as myself on an annual basis, and that may be worth the inconvenience of this cumbersome arrangement. A further benefit: if the economy is tough and the value of the assets is in question, the donor can establish the CLT as a unitrust and then let the charity take the pain of the annual income variations, rather than the donor taking the pain of finding other ways to make the same annual gift, or having to tell tearful fundraisers that the annual gift will decrease. "Bad market" is easier for fundraisers to take than "bad donor." Non-grantor trusts are worth your time; grantor trusts, less so.
Joined: 11/18/1998
Points: 60
In a qualified grantor CLT,
In a qualified grantor CLT, the charitable income tax deduction is the value of assets transferred to the CLT minus the present value of the remainder interest, all taken in the year of the transfer subject to carryover provisions.
Joined: 08/12/1999
Points: 30
Deductions for Grantor CLTs
A grantor CLT is permitted an income tax deduction for the present value of the future stream of payments to the charitable recipient. This means you must use calculation software to compute the present value (although it can be done by hand or in a spreadsheet program if you know what you're doing). The deduction is "for the use of" and not "to" a charity. Therefore, the lower 20% of AGI deduction limit applies. See Treas. Reg. ยง 1.170A-8(c). Finally, there is some concern as to whether the 5-year carryforward rule applies to excess charitable contribution deductions arising from a CLT contribution. The donor's tax advisor should double check this point. Conrad Teitell wrote on this issue a number of years back.
Joined: 04/26/2010
Points: 30
Deduction limits
Ted, Is the deduction limited to 20% of the donor's contribution base even if the charitable recipient is a 170(b)(1)(A) organization? (public charity) Thanks, Geoff N. Germane
Joined: 04/26/2010
Points: 30
I did some more research and
I did some more research and it appears that the deduction would be limited to a maximum of 30% even if the recipient were a public charity. Is this consistent with your understanding?
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