Attorney-at-Law

THE FIVE PERCENT

In Uncategorized on 07/28/2015 at 18:01

No, not the religious group. This blogpost is about the minimum five percent of net asset value of a NIMCRUT, calculated annually, required to be distributed each year in order to make sure the charitable remainderer gets at least 10% of NAV, calculated at inception.

Since the noncharitable income beneficiaries could get enough more (with a catch-up in any year when the assets didn’t yield the required distribution, thus making the Charitable Remainder Unitrusts, or CRUTs, into Net Income with Make-up Charitable Remainder Unitrusts, or NIMCRUTs) to torpedo the charitables at the end of the twenty-year income stream, no charitable deduction for the remainder claimed by Estate of Arthur E. Schaefer, Deceased, Kathleen J. Wells, Executor, 145 T. C. 4, filed 7/28/15.

Section 664 and the regs are not models of clarity, but Judge Buch finds the Senate memo shows what Congress intended, and gives it weight.

“A second modification of the annuity trust and unitrust rules made by the committee provides that the charitable remainder trust must be required by the trust instrument to distribute each year 5 percent of the net fair market value of its assets (valued annually in the case of a unitrust and valued at the time of the contribution in the case of an annuity trust) or the amount of the trust income, whichever is lower. In valuing the amount of a charitable contributions deduction in the case of a remainder interest given to charity in the form of an annuity trust or a unitrust, it is to be computed on the basis that the income beneficiary of the trust will receive each year the higher of 5 percent of the net fair market value of the trust assets or the payment provided for in the trust instrument. * * * S. Rept. No. 91-552, supra at 89-90, 1969-3 C.B. at 481 (emphasis added).” 145 T. C. 4, at .pp. 14-15.

IRS issued Rev. Ruls. and Rev. Procs following that lead, although the regs aren’t clear, and the Code is not much better. So IRS’s guidance gets Skidmore deference.

Clear? Thought not.

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  1. […] Taishoff did a post on this titled The Five Percent.  He finished […]

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