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Estate Beneficiary

I have what seems to me to be a very unusual situation, and I'd appreciate any insight you may have.

Person A died and left a charitable remainder unitrust. His grandson is the lifetime beneficiary. The grandson and the charity are talking about a partition of the trust, so that each can cash out now, since the income currently is fairly small, and the charity may not otherwise get its share for 50 or 60 years.

Someone mentioned to me that if this is done, the lifetime beneficiary's entire share of the trust will be subject to income tax. I can't see it. Section 664 says that the beneficiary of a CRUT is taxed on distributions, but only to the extent that the trust had taxable income.

Am I missing something?

Thanks.

Reply to
Stuart Bronstein
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Is this your situation?: Rev. Rul. 72-243, 1972-1 CB 233

proceeds will be capital gains.

Reply to
Pico Rico

Not exactly, but it's a good place to start. Thanks.

Reply to
Stuart Bronstein

Not my area of expertise... but..

As you stated, this is governed by Sec. 664. That section does not allow for distributions other than the 5% to 50% specified (an exception being for qualified employer securities). The only way for the charity to get the assets quicker would be to partition the CRT into two new CRTs with the same terms. However, the two new CRTs can be any proportion of the original. E.g., they could be 80% - 20%; 50% - 50%; 15% - 85%, etc. The beneficiary could then assign the right to the income in one of the trusts to the charity (remainderman). That trust could then be terminated with no tax consequences as the charity does not pay tax. The remaining CRT would continue to make an annual distribution to the beneficiary based on the specified CRT percentage and amount of assets until the beneficiary dies, at which time the remaining assets would pass to the charity.

Reply to
Alan

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