- Some time ago, H and W established a CRAT of which they are the trustees.
- The remainder beneficiary of the CRAT is H and W’s private foundation.
- The assets of the CRAT have grown to the point where they’re way more than needed to support the annuity payments to H and W.
What H and W Want to Do
H and W want to amend the CRAT so that excess trust income will be distributed each year to the foundation; also, so that they, as trustees, will have the discretion to distribute trust principal from time to time to the foundation.
- Any principal distributions will be such that at least “$X” of principal will remain in the trust — $X being plenty enough (according to the ruling) to support the annuity payout.
- The amendment, therefore, will not affect the actuarial value of the annuity payout.
- IRS gives a green light to the proposed amendment.
- But IRS says H and W won’t get any federal income tax charitable deduction as a result of the amendment.
Any principal distributions must be fairly representative of the basis of all assets available for distribution on the date the assets are distributed.
This is a great little ruling. “Little” because it’s a private ruling, which means only H and W can rely on it. “Great” because it shows how to turn an existing CRAT into a current gift plan.
Although private, the ruling makes sense and therefore serves as a guide post.
by Jon Tidd, Esq