The new qualified contingency cannot be used for that client. But as we see in the above chart, it can be used at age 60 with a single life and a rate of 1. Two lives would require higher ages. Unlike the charitable remainder unitrust, the CRAT is highly sensitive to the rate. So at age 60 with a 2.
This is obviously true at all ages. The following chart illustrates the ten percent remainder interest test and the five percent probability test at various ages in five year increments. By using the qualified contingency, the CRAT would pass at age 60 a full fifteen years earlier than would otherwise be possible. How long the trust would last is an unknown. That depends on the actual earnings of the trust, the annuity payout rate, and the rate used on the date the assets are transferred to the trust.
The following is the example given in the Rev. Lines 2, 3 and 4 are just provided to give clarity to the results of each portion of the calculation. The following is an excel formula that places the answer into a single cell.
It is the number you need to worry about. But as you see in column 6 the trust value is being discounted each year by the rate.
Suggested Admin, Mod, and Crat Guidelines
In this case the trust would terminate in year , so I wouldn't worry about it too much. The trust will terminate at the end of year 16 assuming an annual payment frequency. Had the trust earned a higher rate of return it would increase the number of years before it terminated. If it had earned 8.
The 5 and 5 trust in Example 1 terminated in year Again, this is for educational purposes. The market actually regained it losses by about But would the trustee have the crystal ball to stay in the market. The point is that declines in asset values in a CRAT can be very difficult to make up because the annuity payment is level unlike a CRUT where the payment fluctuates with the value of the trust.
But keep in mind that the rate used in the calculation for a given trust is the rate at the original funding of the trust.
Charitable Remainder Annuity Trust
So increasing rates will not affect existing trusts. In effect, one cancels out the other. As rates go up and down one method of qualification will allow younger income beneficiaries to qualify. And that I believe was the entire purpose of the new Rev. So which method to use? If you include the qualified contingency you run the risk that the trust would at some point fail the test and be terminated, and here was no reason to include the qualified contingency in the first place.
The bottom line is use it when you need to. Another thought for the attorneys reading this article. In the case of a testamentary CRAT we have no way of knowing what the rate will be. A CRAT for a 20 year term and a 1. You use a CRAT when your client absolutely wants the security of level payments. Since the CRUT deduction is barely affected by the fluctuations of the rate it will, at the current rate of 1.
As you can see, there are now more ways to skin a CRAT. This is why your clients need you.
Please leave a comment below and share this article with others so we can all advance in our understanding of charitable estate planning. I don't think this is a e 3 situation, as the probability of exhaustion is not a d problem, but a potential failure of the remainder on a condition subsequent, reg. So yes, I think you need a judicial reformation, but you might not be subject to the time limitations under e 3. The CRAT does not have the language as it was created before Do we think we can amend the CRAT and save it by adding the language effective at death?
Do we have to go through e reformation process? I think the answers are yes and yes, but who knows? Note however that even without the Rev. The typical donor: Needs income for life or a specified term of years. Desires a fixed income based on the original value of assets transferred.
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