Gain an understanding of how to implement charitable remainder trusts for your clients.
Second, only to the charitable gift annuity, the charitable remainder trust (CRT) is the most commonly used vehicle for what is called ‘planned’ charitable giving. In its present form, the CRT has its origins in the Tax Reform Act of 1969. Both the 1969 legislation and further revisions in 1997 were intended to curb certain abuses, which we will discuss. Properly structured, the CRT can allow the trust settlor to defer recognition of capital gain over twenty or more years while affording a significant charitable income tax deduction at the front end. The device can also be useful in prenuptial and divorce planning.
We will look at the basic structure of the CRT, frequently encountered issues in drafting and trust administration, and some planning opportunities. We will examine in some detail the differences between the annuity trust (CRAT) and the unitrust (CRUT), and among the various subspecies of unitrust arising from the choice to impose a net income limitation on the payout, with or without makeup, and with or without a mechanism to flip the net income trust to a straight unitrust payout.
You will be able to identify situations in which a CRT is or is not an appropriate planning vehicle, explain how to structure the trust to meet the client’s planning objectives, and recognize situations in which an existing trust might require a judicial or nonjudicial reformation, or in which the income beneficiary might want to accelerate the remainder.
Learning Objectives
- You will be able to describe the basic structure of the CRT.
- You will be able to identify situations in which a CRT is or is not an appropriate planning vehicle.
- You will be able to explain how to structure the trust to meet the client’s planning objectives.
- You will be able to discuss situations in which an existing trust might require a judicial or nonjudicial reformation.
Agenda
The Partial Interest Rule
- Code Section 170(f), per the Tax Reform Act of 1969
- Revenue Rulings Prior to TRA 69
Section 664(d)
- Income to Noncharitable Beneficiaries, Remainder to Charity
- Two Flavors, Fixed Annuity or Unitrust
- Minimum Payout Five Percent
1997 Amendments
- Maximum Payout Fifty Percent
- Present Value Remainder at Least Ten Percent
- cf. the Accelerated Unitrust
- Implementing Regs Re-Distribution After Close of Tax Year
Other Requirements
- Distribution at Least Annually
- Term of Years No More Than Twenty
- Qualified Contingency (Does Not Affect Remainder Value)
- No Restriction Preventing Investment for Total Return
- Must Qualify From Inception
Tax Characteristics
- Worst in, First out Taxation of Distributions
- The Trust Itself Is Exempt From Income Tax
- Subject to the Private Foundation Excise Tax Regime
Special Problems
- Rev. Proc. 2005-24
- Valuation of Unmarketable Assets
- Specimen Docs per 2003 Revenue Procedures
- Unrelated Business Taxable Income (UBTI)
- Net Investment Income Subject to 3.8 Percent Medicare Surtax
Requirements Specific to Annuity Trusts
- No Additions
- Probability of Exhaustion
- Rev. Proc. 2016-42
Variations on Unitrust
- Straight Percentage Payout
- Net Income Limitation
Remainder Trust for the Benefit of Third Party
- Non-Spouse
- Spouse
- Noncitizen Spouse
Speakers
Russell A. Willis, III, J.D., LL.M.,
Planned Gift Design Services- Manager of noncash research for Charitable Solutions, LLC, a planned gift risk management consulting firm headed by Bryan Clontz
- Works as a freelance paralegal consultant with nonprofits, donors, and their advisors in structuring charitable contributions of closely held business and real property interests to serve the mutual advantage of all parties
- Provides legal research and advice on income and transfer tax planning more generally and writes the occasional trial or appellate brief
- For ten years, he was a writer and editor for a subscription website that provided daily coverage and in-depth analysis of developments in tax law affecting charitable gift planning
- Launched his newsletter, the Jack Straw Fortnightly, back issues and authored papers are posted to [external url]>
- Has spoken at several national and regional conferences and to local planned giving roundtables, community foundations, and bar associations
- J.D. degree, St. Louis University; M.A. degree in English, University of Chicago; M.A. degree in taxation law, Washington University in St. Louis; undergraduate degree in English literature, Indiana University Bloomington
Who Should Attend
This live webinar is designed for attorneys, estate planners, accountants, presidents, vice presidents, CFOs, controllers, business owners and managers, tax managers, and financial planners.
