From the July 2006 issue of Investment Advisor • Subscribe!

July 1, 2006

Closing a Loophole

The IRS was concerned that if someone established a charitable remainder annuity trust it might be done in such a way that the annuity remitted to the donor over his lifetime would leave nothing left to the charity. To deter this abuse the IRS now requires that a CRAT will not qualify for a charitable contribution unless at least 5% but not more than 50% of the fair market value of the assets placed in the trust at its inception will be consumed through the annuity payments {IRC SEC. 664(d)(1)(A)]. As to a CRUT, the IRS has stipulated that the value of the charitable remainder interest must be at least 10% of the value contributed {IRC SEC. 664(d)(1)(D)]. The IRS was concerned that if someone established a charitable remainder annuity trust it might be done in such a way that the annuity remitted to the donor over his lifetime would leave nothing left to the charity. To deter this abuse the IRS now requires that a CRAT will not qualify for a charitable contribution unless at least 5% but not more than 50% of the fair market value of the assets placed in the trust at its inception will be consumed through the annuity payments {IRC SEC. 664(d)(1)(A)]. As to a CRUT, the IRS has stipulated that the value of the charitable remainder interest must be at least 10% of the value contributed {IRC SEC. 664(d)(1)(D)].
Reprints Discuss this story
This is where the comments go.