Charitable Remainder Unit Trusts Flashcards
CRUT Value
Total value of property minus
– PV of retained interest
CRUT Recipient of payment
Noncharitable beneficiary (typ. Donor)
CRUT payment
- >= 5% and <= 50% of FMV, valued annually
- paid at least annually for life or term up to 20 years (similar to fixed annuity)
CRUT additional contributions?
Yes
May CRUT hold tax-exempt securities?
Yes
May PIF hold tax-exempt securities?
No
CRUT purpose
- Split interest gift where part of interest is given to charity
- Donor receives a variable annuity and remainder goes to charity
- Usually created during life
Charitable Lead Trust purpose
(CLAT or CLUT)
Property is transferred to a trust that distributes income to a charitable beneficiary for a specific term with the remainder reverting to a noncharitable beneficiary (may be grantor or other remainderman)
CRUT Remainder Interest requirement
PV(remainder interest) >= 10% FMV initial
CRUT planning opportunity
Appeals to clients who want to hedge against inflation
Can provide for income on min(unitrust amount, amount actually earned on property), with makeup
CLT planning opportunity
- Good for clients who have a large amount of highly appreciating assets and can forego the income from these assets
- When interest rates are low, this increases the valuation of the deductible interest donation because of the lower valuation of the remainder
CRUT Gift/Income Tax consequences
Income tax: Donor eligible for an immediate charitable contribution deduction, if created during life, subject to limitations on the type of charity and AGI limitations
Grantor CLT Gift/Income Tax consequences
Grantor is
- taxed on the income
- and is eligible for the charitable deduction equal to the amount the trust pays to the charity, subject to limitations on the type of charity and AGI limitations
Nongrantor CLT Gift/Income tax consequences
No charitable income tax deduction!
