In Revenue Procedure 2016-42 the IRS gave sample language that can be included in the governing instrument of a Charitable Annuity Trust (CRAT) providing for annuity payments payable for one or more measuring lives followed by the distribution of trust assets to one or more charitable remaindermen that can allow the trust to escape the “probability of exhaustion” testing found in Revenue Ruling 70-452.
Charitable remainder trusts, as defined in IRC §664, provide one of the few methods that allow for a charitable deduction of a partial interest to a charity for either income tax or estate tax purposes. The trusts provide for a payout to an income beneficiary for a period of time (can be a fixed number of years or for life) and then, following the end of that term, the balance remaining in the trust being paid to a charitable organization. A deduction is allowed for the discounted value of the expected balance to be paid to the charity at the time the trust is formed.
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