No CPA or tax attorney seems to know the answer to this, can you help? | Ed Slott and Company, LLC

No CPA or tax attorney seems to know the answer to this, can you help?

Cleint is 67 years old and wants to give 1 million to a couple of charities.

The 1 million sits in his IRA

He wants to transfer the IRA directly over to a "charitable unit trust" so he can have the option to name the charities instide the trust and add some more charities later. The CRUT would send him income of 5-6% for life.

a. would the transfer of his 1 million IRA to the CRUT be taxed to him on a 1099 for the 1 million?

b. or would it not be taxed since he transferred the IRA directly over to the charity?

c. would his income be taxed from the CRUT?

d. would he still receive a tax deduction of 50% for 5yrs?

Please, any help you can would be appreciated.

Thank you,
Douglas

He cannot "transfer" the IRA or the funds in the IRA directly to any other person or entity.  He can take a distribution of the funds to himself, which would be reportable on a 1099R, then do whatever he wishes with that money.  Whether the action of taking the million and transferring it to the trust after taking the distribuiton would offset the taxable liability of the distribution would be a question someone else would have to answer.

if he did take the 1M and was taxed on the 1M as an IRA distribution.a. If he then funded a CRUT with the 1M, he would receive a tax deduction to use over 5yrs for 500k, is this correct?thankyou.Douglas

  • The income tax deduction will depend on the value of the charity's remainder interest, but with a 5% payout rate it would be close to 50%.
  • I'm not sure this plan makes sense.  It accelerates income, and gives up considerable flexibility (which could be important given his age).  He might want to instead consider making some qualified charitable distributions (QCDs) after he reaches 70 1/2, and naming charities as beneficiaries to receive some or all of the IRA at his death.
  • Why are you dealing with lawyers who don't understand this?
  • Bruce Steiner
 

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