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Member
 
Group: Forum Members
Last Login: 3/9/2006 9:13:21 AM
Posts: 35,
Visits: 10
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Group,
I have a client in his 70's with a 2 million dollar IRA and probably 3 million of other assets. He has never been very charitable except to his kids and grandkids. Now he wants to do something new and wanted some general info. I explained CRT's, Donor Advised Funds, etc.
He probably won't end up doing very much or anything very complicated but for my own education ...
First, what can be done with the IRA besides carving off a portion of it and making a charity a beneficiary?
The RedCross on their website writes:
One way to make a gift of your retirement plan is to create a charitable remainder trust through your will. It works like this: Your IRA assets will be transferred to a charitable remainder trust. There is no tax due because the charitable remainder trust is a tax-exempt entity. The trust will provide life income to the beneficiary (for example, your child) with an eventual gift to the Red Cross. The beneficiary will pay income tax on the distributions from the trust. Your estate will receive an estate tax charitable deduction for the value of the Red Cross's right to eventually receive the trust assets.
So responding to what they wrote, what happens to the individuals tax position when they say "your IRA assets will be transferred to a CRT"
I would think those assets would be income to the individual and then a donation would go on Sch A, right? This is hardly creative. Maybe they are thinking post death?
Thanks,
Glenn Hammill, CPA
Walnut Creek, CA
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Member
Group: Forum Members
Last Login: 3/9/2006 9:13:21 AM
Posts: 35,
Visits: 10
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I'm not sure that I understand your question but as I understand the article Red Cross is advocating a testamentary CRT. What happens is the IRA is then transferred to the CRT at death, the charity distributes the annuity amount to the beneficiary each year. The beneficiary will have ordinary income because using the tier system that CRT taxation requires, no capital gains, qualifying dividends, U.S. bonds etc interest can be passed out until the IRD in the IRA is exhausted.
With the testamentary CRT, the IRA is sheltered from estate taxation by the charitable deduction and the marital deduction if the annuitant is the surviving spouse. Otherwise, the estate pays tax on the portion of the IRA that represents the income stream to the beneficiary.
If someone established a CRT during lifetime, each RMD would be taxable to the CRT grantor and then they would have a charitable deduction. It's not satisfactory tax wise and that's why people don't do them.Mary Kay Foss
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