Discussion:CRUT - how much to include in first to die spouse's gross estate?
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Discussion Forum Index --> Tax Questions --> CRUT - how much to include in first to die spouse's gross estate?
| 6 May 2008 | |
| Decedent has a CRUT, with decedent and surviving spouse as lifetime income beneficiaries. My question is how much to include in the decedent's (1st to die spouse) gross estate? My guess is to include the FMV of the CRUT in the gross estate (sched G) and claim a charitable deduction and marital deduction (FMV of lifetime income to surviving spouse). Just want to check with you guys if my analysis is correct.
Thanks so much guys. | |
| 6 May 2008 | |
| The first thing I did was look at your profile. Fill that out and I'll take a stab at this. However, your question leads me to believe you are in a little over your head. With more profile info you will get more replies. | |
| 6 May 2008 | |
| Ok, I am a California CPA and CFP who started his career as an auditor with AA then moved to EY, between and after (current)those two jobs I did/doing taxes for smaller firms which I really enjoy than audits - sorry no time to update my profile.
Anyway, just to share with you guys, I asked around our firm, and I was told to use another software (Denver - for 706 we use BNA) to value the CRUT by inputting info from the trust docs and investment statement @ DOD. I just like asking questions in this site from time to time although we have resources here in our firm but I will appreciate it if you have additional inputs. | |
| 6 May 2008 | |
| Proposed Reg-119097-05 | |
| 6 May 2008 | |
| Thanks so much Dennis. Please correct if I am wrong, my understanding of the proposed reg is that there is a formula to determine the amount to be included in the gross estate (which will make it a lot less than the FMV @ DOD) but this will be completely removed by making a corresponding estate tax charitable and marital deduction. Right?
I really appreciate it. Thanks again. By the way, my bad, the software is not Denver but Brentmark (to compute using Sec 7520 rate per above proposed reg). | |
| 6 May 2008 | |
| You have community property issues that I can't help with. (In NY, decedent would be grantor with respect to only half the CRUT) Basically whenever the unitrust rate is higher than the 7520 rate you have 100% inclusion. The secondary income interest qualifies for the marital deduction and there is a charitable deduction for the remainder. | |
| 7 May 2008 | |
| When was the trust funded? Is this a testamentary trust? What does the trust say about funding?The charitable interest will qualify for an estate tax charitable deduction on the Estate Tax Return. Reg 1.664-1(a)(5). Generally the first to die includes the FMV of all assets, including those that will fund the CRT. You will deduct the 50% community interest of the surviving spouse on Schedule G. I assume the trust deals with this issue of community and separate property.
Other factors to consider are how to compute and pay the unitrust amount. There are Regs and Revprocs that can guide you in computing unitrust amounts for partial years. | |
| 7 May 2008 | |
| PS- I think you still have a long way to go. Your first 5227 will be an eye opener. Prepare your client for high costs of tax administration for these. In CA your software should be able to kick out Forms 541A and 541B. If this is a CA resident and CA trust you wil have less reconciling Fed to State amounts, that will help. | |
| 7 May 2008 | |
| Thanks so much guys. I really appreciate it a lot, that's why taxalmanac is so cool. | |
| 7 May 2008 | |
| Charitable Remainder Trusts, CRTs, are irrevocable trusts set up for the primary reason to make a charitable gift. I have never seen one set up as a testamentory trust, but I guess it's possible.
A second reason to fund a CRT is that a CRT can provide a donor with significant income tax benefits during his lifetime. The present value of the gift is tax deductible. Capital gains that would have arisen with the sale of appreciated property is suspended and taxed to the beneficiary over time (due to enhanced income to the beneficiary). If the transfer of the property was made during the donor's lifetime, then the charitable trust (a non-taxable entity) becomes the owner and the corpus is not included in the donor's estate. Any charitable deductions would have been taken on the donor's 1040. I agree with Lancermc. Form 5227 is a real charmer. | |
| 7 May 2008 | |
| Note that the actual question dealt with estate inclusion for an existing CRUT. Testamentary CRUTs are fairly common in cases where there are large pension assets (see Rev. proc. 2005-57). Form 5227 is basically an information return that I doubt anyone at the IRS actually reads. I can't see anyone with a knowledge of trust accounting and a basic understanding of the laws governing these instruments having a problem. | |
| 7 May 2008 | |
| We all know the IRS stacks them up in hallways and falls over them on the way to lunch. That is not an issue, I assume every return I sign is going to be examined, fortunately none are (knock on wood). My reference was this, the last 5227 I did, I could have done a 1040 with the same facts in 2-3 hours, took me 15+ hours. Stock basis for each stock inlcuidng tracing bakc to estate tax returns, FMV for each stock, reasonableness of RE FMV, depreciation reserve calculations, unitrust amount, distribution of taxable income, capital gain, tax exempt income.........! Takes forever. The questionnaire is fun to. Review your 5227 questionaires. I wonder if they are all correct? | |
| 8 May 2008 | |
| Beats me. It's a 15 minute copy job with a UPIA conforming set of books. We're under court supervision in NY, but I can't imagine doing one of these freehand. Just think, if you ever have to do a formal accounting (required in NY to close) it will probably take you months.♫ | |
