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The Charitable Remainder Unitrust (CRUT) is coming back into favor with families looking for ways to bypass some of the taxation issues facing traditional IRAs.
If you are not familiar with it, a CRUT is an irrevocable trust created under the authority of Internal Revenue Code. This special, irrevocable trust features two primary characteristics: (1) once established, the CRUT distributes a fixed percentage of the value of its assets (on an annual or more frequent basis) to a non-charitable beneficiary; and (2) at the expiration of a specified time (usually the death of the settlor), the remaining balance of the CRUTs assets are distributed to charity. The trustee determines the fair market value of the CRUT's assets at the time of contribution and thereafter on the applicable valuation date.
Distributions from a traditional IRA are taxed at regular income tax rates. Families could stretch an IRA to get years of tax-deferred growth, but people often do not appreciate the tax issues and it is human nature to want to cash out.
A CRUT can solve many of the problems that come up with traditional IRAs. A person should include a provision for a “testamentary” CRUT in their will and then name the CRUT as the beneficiary on their IRA form. The CRUT will make annual payments to the designated heir or heirs for a fixed number of years, with the listed charity receiving the remainder.
It sounds complicated, but your estate planning attorney should be able to use the CRUT as an effective tool for your family.