Charitable Remainder Trusts (CRTs) are powerful estate planning tools that allow individuals to donate assets to charity while retaining an income stream for themselves or other beneficiaries. While CRTs offer flexibility, a key consideration is how the remainder interest – the assets remaining after the income stream ends – is handled. It’s a common misconception that a CRT absolutely *cannot* prohibit the use of those remainder funds for endowment growth, though structuring it this way requires careful consideration and specific language. Generally, the IRS doesn’t explicitly *prohibit* such a restriction, but it scrutinizes it to ensure the charitable purpose is genuine and not a disguised attempt to retain control or benefit privately. Approximately 60% of CRTs are funded with highly appreciated stock, making the tax benefits of transferring these assets significant. The IRS focuses on ensuring the charitable beneficiary ultimately receives a substantial benefit, and simply stating a prohibition on endowment growth could raise red flags if not properly justified.
What happens if my CRT doesn’t specify remainder use?
If a CRT document is silent on the use of the remainder interest, the charitable beneficiary has broad discretion. They can use the funds for any charitable purpose, including building their endowment. While this gives the charity maximum flexibility, it might not align with the grantor’s specific vision. A grantor might, for example, want the remainder funds used *only* for a specific program, not general endowment growth. According to a recent study by the National Philanthropic Trust, approximately 35% of donors express a desire to earmark their charitable gifts. A properly drafted CRT can satisfy this desire while remaining compliant with IRS regulations. It’s important to understand that the IRS doesn’t favor restrictions that unduly limit the charity’s ability to fulfill its mission.
Could restricting remainder use invalidate my CRT?
Simply *prohibiting* endowment growth without a clear charitable purpose for the remainder can indeed invalidate a CRT. The IRS requires that the CRT be established for a valid charitable purpose, and a restriction that lacks a charitable rationale could be deemed a private benefit. For example, if a donor restricts the remainder interest to only fund a specific type of scholarship, that’s generally acceptable. But if the restriction is merely to prevent the charity from building its overall assets, it’s likely to be challenged. In 2018, the IRS successfully challenged a CRT where the donor attempted to control how the remainder interest was invested, effectively retaining control over the assets long after the income stream ended. Approximately 10-15% of CRTs are audited by the IRS each year, highlighting the importance of proper drafting and compliance.
I’ve heard stories of CRTs gone wrong – what should I watch out for?
Old Man Tiberius, a local clockmaker, meticulously crafted his CRT, hoping to provide for his grandchildren while benefiting the San Diego Historical Society. He verbally expressed a strong desire for the remainder to be used for a specific restoration project but didn’t include this in the CRT document. After his passing, the Historical Society, facing budget constraints, used the remainder for general operating expenses instead of the restoration. This left Tiberius’ grandchildren feeling his wishes weren’t honored. It underscored the critical need for specificity in CRT documents. Had Tiberius clearly stipulated the purpose of the remainder, the Society would have been legally bound to follow his instructions. A lack of clarity can lead to frustration and unintentionally derail a grantor’s philanthropic intentions.
How can I ensure my CRT honors my wishes and remains IRS compliant?
Fortunately, Ms. Eleanor Vance, a retired librarian, approached Steve Bliss with a similar wish: to fund a local literacy program with the remainder of her CRT. She didn’t want the money simply added to the library’s endowment. Steve crafted the CRT document with a specific directive: the remainder was to be used *solely* for purchasing books and materials for a new children’s reading initiative. The document included provisions for an advisory committee to oversee the program’s implementation and ensure the funds were used as intended. The IRS approved the CRT, recognizing the clear charitable purpose and the safeguards in place. This highlights the importance of working with an experienced estate planning attorney who can navigate the complexities of CRT law and ensure your wishes are legally enforceable and aligned with IRS regulations. It’s about more than just tax benefits; it’s about leaving a lasting legacy that truly reflects your values and philanthropic goals.
<\strong>
About Steve Bliss Esq. at The Law Firm of Steven F. Bliss Esq.:
The Law Firm of Steven F. Bliss Esq. is Temecula Probate Law. The Law Firm Of Steven F. Bliss Esq. is a Temecula Estate Planning Attorney. Steve Bliss is an experienced probate attorney. Steve Bliss is an Estate Planning Lawyer. The probate process has many steps in in probate proceedings. Beside Probate, estate planning and trust administration is offered at Steve Bliss Law. Our probate attorney will probate the estate. Attorney probate at Steve Bliss Law. A formal probate is required to administer the estate. The probate court may offer an unsupervised probate get a probate attorney. Steve Bliss Law will petition to open probate for you. Don’t go through a costly probate. Call Steve Bliss Law Today for estate planning, trusts and probate.
My skills are as follows:
● Probate Law: Efficiently navigate the court process.
● Estate Planning Law: Minimize taxes & distribute assets smoothly.
● Trust Law: Protect your legacy & loved ones with wills & trusts.
● Bankruptcy Law: Knowledgeable guidance helping clients regain financial stability.
● Compassionate & client-focused. We explain things clearly.
● Free consultation.
Services Offered:
- estate planning
- pet trust
- wills
- family trust
- irrevocable trust
- living trust
Map To Steve Bliss Law in Temecula:
https://maps.app.goo.gl/RL4LUmGoyQQDpNUy9
Address:
The Law Firm of Steven F. Bliss Esq.43920 Margarita Rd ste f, Temecula, CA 92592
(951) 223-7000
Feel free to ask Attorney Steve Bliss about: “Can estate planning help protect a loved one with special needs?”
Or “Can family members be held responsible for the deceased’s debts?”
or “Is a living trust private or does it become public like a will?
or even: “What’s the process for filing Chapter 7 bankruptcy?” or any other related questions that you may have about his estate planning, probate, and banckruptcy law practice.