Blog

A New Planning Opportunity with Charitable Remainder Trusts

Charitable remainder trusts (“CRTs”) are split interests trusts, with the taxpayer retaining an income interest and charity receiving the remainder.  The CRT often is used to defer gain on the sale of highly appreciated property.  The taxpayer receives an income deduction for the value of the remainder interest going to charity and defers the capital gain on the sale of the property until he or she receives distributions from the CRT. The administration of the CRT can be tricky, however, since the private foundation rules on self-dealing apply to a CRT.

The IRS recently issued PLRs 201713002 and 201713003 in which the IRS ruled that a CRT that qualifies under Code Section 664 as a charitable remainder trust so that a deduction is available but where the taxpayer fails to take the deduction is not subject to the self-dealing rules.

Since the income tax deduction typically is not significant, a client may be willing to forgo the deduction so that he or she is not subject to the onerous self-dealing rules while still achieving tax deferral.  Forgoing the deduction could create estate and gift tax issues, and PLRs are not binding on anyone other that the taxpayer who sought and received the ruling.  Still, the rulings are fascinating and present an interesting planning option to pursue with tax counsel.

About Grady Dickens

I created this blog to comment on items of current interest regarding trusts, estate planning, charitable planning and tax law, and share my knowledge and over thirty years of experience as an attorney practicing in Dallas, Texas.