CRUT funded with 5-yr deferral investments

Submitted by Douglas Bauerband on Fri, 2019-09-20 19:12

Have client with approx. 300k in inherited investments with a cost basis of approx. 100k. The accounts are under the 5-yr deferral option that allows them not to take any distributions until the 5th year of the death of decedent.

a. Can they use this money to fund a CRUT for their charities, receive an income and receive a tax deduction?

They are worth north of 5M and need some tax deductions along with funding their favorite charities. They are in FL.

Thank you,
Douglas

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Permalink Submitted by Bruce Steiner on Sat, 2019-09-21 18:49

It sounds like an investment-type annuity. There’s usually no good solution to an investment-type annuity. Often the best thing is to take it over 5 years so as avoid the ongoing costs and to avoid continuing to convert qualified dividends and capital gains to ordinary income without bunching all the income into one year.

It might have made sense for the decedent to have left the annuity (if that’s what it is) to a charitable remainder trust. The CRT could have cashed it in without any immediate tax consequences since it’s tax-exempt. Distributions to the beneficiary of the CRT would generally be taxable but over many years.