1. T/F A CRUT is a charitable trust that provides a donor or someone else with a fixed amount of income each year during the duration of the charitable trust.
2. T/F A Charitable Gift Annuity is a charitable trust that provides a variable amount of income for one or more lives with the remainder of the trust going to one or more charities.
3. T/F The maximum a donor can transfer to his or her spouse at death without incurring an estate tax on the transfer is five million dollars.
4. T/F If a donor itemizes deductions, the donor can claim an income tax charitable deduction for the entire amount of an outright gift of cash to charity, as long as the deduction does not exceed the donor’s taxable income for that year.
Did you answer “true” for any of the questions? If so, read on:
1. False. A CRUT (Charitable Remainder Unitrust) is a charitable trust that provides a variable amount of income for one or more lives (or a specified number of years) with the remainder of the trust going to one or more charities.
2. False. A Charitable Gift Annuity is an annuity that involves an agreement between a charity and one or two persons, requiring the charity to provide a specific amount every year to the “annuitant(s)” for life.
3. False. The “unlimited marital deduction” allows any U.S. citizen the ability to transfer an unlimited amount to his or her U.S. citizen spouse — during life and at death. For example, a wife could give her husband a billion dollars and still not owe a gift or estate tax. However, under this same scenario, if no other planning was implemented by either spouse, there could potentially be an enormous estate tax problem upon the second spouse to die. Careful planning while both spouses are alive is the best way to address possible future tax consequences.
4. False. Assuming a donor itemizes deductions, the donor can only claim a charitable income tax deduction for cash gifts to a qualified charity up to 50 percent of the donor’s adjusted gross income (AGI). For gifts of appreciated property, the maximum deduction decreases to 30 percent of the donor’s AGI. However, if the donor is unable to use all of his or her charitable deduction in the year of the gift (whether cash or appreciated assets) the donor can carryover the deduction for five more years.
This article is for information purposes only. Readers should consult with a qualified professional advisor for assistance.