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Posted May 17th, 2019

A CRT Paying Into a Second Trust — Part II

Last time, we looked at the idea of a CRT paying into a second trust. We focused on an example of a charitably motivated parent who wants to provide support for his 49-year-old disabled son.

The plan we examined was a 20-year term-certain CRT paying into a second trust that was to provide for the son, who we assumed has a diminished future lifespan.

Let’s now assume the son has a normal future lifespan, expected to be another 30 to 35 years.  Now the idea of a 20-year CRT doesn’t work.

What about a CRT paying into a second trust for the son’s life?

We need to consider several things:

  • This CRT may not provide a great benefit to the charitable remainder beneficiary, because of the son’s young age.
  • Depending on the IRS discount rate, a CRAT may not work, because of the 5%-probability test. A CRUT may have to be employed.
  • The idea of a CRT paying to a second trust for the life of the son works only if the son is truly incapacitated. There’s an IRS ruling on this point.
  • If a CRT pays to a second trust for the life of an individual, any assets remaining in the second trust at the death of the individual must be paid to the individual’s estate.

That’s a bunch of complex planning considerations.

If you run into this sort of situation, you and the donor are going to need expert advice. The donor will need to have expert legal counsel.

by Jon Tidd, Esq

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