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     CHARITABLE REMAINER UNITRUSTS (CRUTS)

                                CARING FOR DISABLED PERSON?  NEW IRS RULING OFFERS TAX HELP

 Although CHARITABLE Remainder Uunitusts (CRUTs) offer powerful tax advantages, using a CRUT to help provide for a disabled person hasn’t been easy – until now.

 Thanks to a new IRS ruling, both you and your dependent can be accommodated. In effect, you can have your CRUT pay income to a “special-needs” trust without losing tax advantages, as long as you meet certain conditions. (IRS Revenue Ruling 2002-20). Here’s how it can work:

 PART 1: CHARITABLE REMINDER UNITRUST

By transferring money into a CRUT, you pull assets from your taxable estate without paying any gift tax. Even though the assets no longer are yours, the trust will pay income to people you name, based on a certain percentage. After the income payments top, the remainder of the trust fund is handed over to a charity that you’ve named.

 The tax benefit: You’ll earn an upfront partial income tax deduction for the future charitable gift. If you donate appreciated assets you can earn a deduction based on the full current value, yet no capital gains tax is due.

 The catch: If you want your CRUT to pay its income to a disabled person, problems may arise. That person may not be able to handle money. For another, an increase in income may disqualify the disabled person from certain government benefits.

 PART II: ‘SPECIAL-NEEDS’ TRUST

To fix this problem, so-called special-needs trust are established to help provide for disable people. These trusts hold assets so the person can qualify for government benefits. Yet the trust can provide certain items – from eyeglasses to vacations – to help the disabled person maintain a comfortable lifestyle. 

To funnel money into the special-needs trust in the most tax-efficient way, you could establish a CRUT and name a special-needs trust as the income beneficiary. This is a triple winner: 

1. You’d get the tax benefits of creating a CRUT

2. The CRUT income would pass to the special-needs trust.

3.  The trustee would make the appropriate distributions to the disabled party.

 One problem: CRUT rules say a trust can be an income beneficiary only if the payout lasts 20 years or less. If you want a longer payout period, or a lifetime payout, the old rules said that either a person or a charity must be the income beneficiary. 

PART III: IRS FIXES THE PROBLEM

But the IRS now says a trust can be the income beneficiary of a CRUT for a longer tie period, as long as the beneficiary has a mental or physical impairment that is expected to last at least one year. Also, the trust must be solely devoted to caring for a disabled beneficiary.

 Assuming those conditions were met, you can set up a CRUT, which will make payouts to s special-needs trust. The trustee of the special-needs trust can then distribute money to the disabled person.

The following articles are for informational purposes only, and your should always consult with your tax advisor to determine the tax implications for your particular financial situation.

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