Discussion:Dissolving a CRUT

If the US person gives up his citizenship, and all the trustees are now offshore, what happens to the trust? Does the fact that it becomes a foreign trust effectively dissolve it? If so, does this trigger an automatic payout to the charity? Is there some sort of tax that might be due? And what forms will I have to file in the year that the US person gives up their citizenship?

A quick look at my resources tells me that the trust should not dissolve. The U.S. trust would need to file Form 3520 to report the gratuitous transfer to a foreign trust. See Notice 97-34, Sec. 6048, and instructions to Form 3520. The individual may need to file Forms 8854 and I-407.

I have further questions arising from your reply.

1) If a CRUT has a deemed gratuitous distribution of the entire value as you say, then isn't that an excess distribution? 2) I have not been able to find any information regarding taxes or penalties for excess distributions. Are there any? 3) Would this necessitate an amendment of the US tax return filed umpteen years ago to remove the charitable donation deduction on Schedule A? I am assuming that, since the charity is the ultimate beneficiary and remains so, that there is no requirement to amend the Schedule A from years ago. 4) As after the gratuitous distribution, the CRUT has a zero balance and no longer is a US trust. I assume it no longer files Form 5227?

If all beneificiaries were domestic, I am wondering why it would be a proplem if the trust dissolves. The life interest stops getting annual distributions, pays tax on the lump sum recieved, and the charitable remainder interests get what they were promised, the remaining assets.

I do quite a few of these and don't want to oversimplify, especially since aliens are presumably beneficiaries. However, with CRTs, it is usually best to start with the basic economic reality of a planned transaction, if it makes sense, no tax avoidance is intended, then why not?

The Estate Tax or Gift Tax valuation of the remainder interest is based on the actuarial age of the life income interest. That may be an obstacle, however why would it be?