Discussion:Grantor Charitable Lead Trust - 1041 Required?

Then I realized that, because of the way it was structured, the trust owns 10% of the LLC and is a member. Therefore, it receives 10% of biz income, and other items, etc.

To top it off, he may consider selling the LLC this year, which means the Trust would receive 10% of the gain on sale of the business.

I think the safe thing to do would be to file the 1041 so that the K-1 generated by the LLC has somewhere to go (especially next year, when he may have sold the biz). But I don't want to create the entity so that those amounts can be taxed at trust rates.

As I've know, trusts are complex, and most CPA's (including me) do not have much experience in them. Does anyone have any thoughts or authoritative guidance on this one?

I've checked the board, but it appears that the situations are slightly different than mine...

Split-Interest Charitable Trusts

I'll be giving a 2 hour CPE course on these at NATP's conference in July. See my profile page for details Kevinh5

I wouldn't limit the knowledge gap to only CPAs, although you are right, many have no idea of what these are or what to do with them.

Similarly, I wouldn't be limited to the assumption that only CPAs have knowledge of these either. You'll find that there are a whole lot of tax experts who are not CPAs.

I have found that CPAs in my classes over the years have as many basic tax questions as many new tax preparers, and the smartest ones are not afraid to admit when they don't know something. The least smart preparers hope nobody will notice and no one will question them. Of course my opinion is the smartest ones are the ones who admit they don't know everything and take all the courses they can. The least smart ones take the least CPE hours required and look for the cheapest way to get CPE.

How much does it cost to appraise the LLC interest at the date of the initial gift and again each year?

What kind of discount did they give to the minority interest?

Just a little of both...:)

In any case, the client hired a pretty good attorney that drafted the trust document. The guy seems very sharp, so hopefully he would have covered the bases.

To answer your questions, the LLC is being taxed as a 1065 partnership (it's just him and his wife - and now the Trust owns 10%).

The cash to pay the annuity was given (gifted?) 10% of the partnership, which was valued at $400,000. I have the other info in the trust document back at my office...

In any case - it would seem that you would have to file a trust return to be safe...I don't know how you would attribute the K-1 income to the trust otherwise, if it was just reported on the taxpayer's return.

Am I going in the right direction?

Thanks for all the help. One more question - what would you attach to the return to support this deduction? I was planning on attaching the 5227, the attorney's calculation of the charitable donation amount (with valuation assumptions used), possibly a copy of the trust document, and a statement from the trust administrator that the charitable beneficiary is indeed a qualified 501c charitable organization.

Am I missing anything?

Thanks for the help - i've never reported something like this before.