CRT Trustee Can Divert Some Trust Payments to Charities

The IRS several years ago approved a two-life charitable remainder unitrust that allowed charitable organizations to be auxiliary income beneficiaries, as well as remainder beneficiaries.  The individual beneficiaries were guaranteed a minimum of 25% of the unitrust payout, but an independent trustee was given the power to allocate the remaining 75% among charities of the trustee’s choosing and the individual beneficiaries (PLR 200813006).

The grantors of the unitrust received no additional income tax charitable deduction for charity’s potential income benefits, but the individual beneficiaries will not have reportable income as to distributions actually made to organizations.  This arrangement may be attractive to donors who want to benefit charity before the trust ends and don’t need 100% of the trust payments for their financial security.  Individuals do achieve “backdoor” tax savings, not only by diverting taxable income to charities, but also by trimming adjusted gross income as well – the yardstick for a variety of unfortunate tax results.


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