Split-Interest Trust QCD Example Using a Fixed-Term CRUT Assumptions Value of Contribution 50,000 Unitrust Payout Rate 4.5% Contribution Growth Rate 6.0% Section 7520 Rate 4.6% Trust Term (Years) 20 Payment Timing Period End Payment Period Annual Payment and Residual Value Computation ENDING BALANCE BEGINNING BALANCE PAYMENT AMOUNT BEFORE PAYMENT AFTER PAYMENT 1 50,000 2,250 53,000 50,750 2 50,750 2,284 53,795 51,511 3 51,511 2,318 54,602 52,284 4 52,284 2,353 55,421 53,068 5 53,068 2,388 56,252 53,864 6 53,864 2,424 57,096 54,672 7 54,672 2,460 57,952 55,492 8 55,492 2,497 58,822 56,325 9 56,325 2,535 59,704 57,169 10 57,169 2,573 60,600 58,027 11 58,027 2,611 61,509 58,897 12 58,897 2,650 62,431 59,781 13 59,781 2,690 63,368 60,678 14 60,678 2,730 64,318 61,588 15 61,588 2,771 65,283 62,512 16 62,512 2,813 66,262 63,449 17 63,449 2,855 67,256 64,401 18 64,401 2,898 68,265 65,367 19 65,367 2,942 69,289 66,348 20 66,348 2,986 70,328 67,343 52,028 Charitable Contribution Deduction Computation Unadjusted Unitrust Payout Rate 4.500000 Payout Factor for § 7520 Rate 0.956023 Adjusted Unitrust Payout Rate 4.302104 Remainder Factor 4.2% 0.423946 0.423946 Remainder Factor 4.4% 0.406591 Difference 0.017355 Interpolation Relationship (4.32104-4.2) = x (4.4-4.2) 0.017355 x 0.008860 Indicated Interpolated Remainder Factor 0.415086 Initial Trust Corpus Value 50,000 Present Value of Remainder Interest 20,754 Based upon the example computations, the following table demonstrates selected outcomes related to an IRA-based funding source both with and without the QCD treatment election. Note that the settlor in each funding case is expected to receive total payments from the trust of $52,028 and that the charitable organization is expected to receive assets from the trust worth $67,343. Note too that, as compared to the non-electing settlor, the electing settlor forgoes a potential $20,754 charitable contribution deduction in exchange for excluding $50,000 of taxable income.5 Similarly, note that the electing settlor may sacrifice the benefit of favorable alternative rates that might otherwise apply to the income of the trust. DESCRIPTION IRA Dollars as CRUT Funding Source Without QCD Treatment Election With QCD Treatment Election Taxable Income $50,000 N/A Charitable Contribution Deduction $20,754 N/A Cumulative Payments Received by the Settlor $52,028A $52,028B Residual Value of Assets Transferred to Charity $67,343 $67,343 A Taxed as distributions of the trust’s income and gains (some portion of which might be capital in character). B Taxed as ordinary income. Customers might benefit from a conversation about the new split-interest trust QCD rule, even with its limitations. It’s an easily demonstrated discussion that can seamlessly accompany annual client conversations regarding qualified charitable distribution planning. Bryan P. Robertson, JD, CPA provides trust and estate planning services for his wealth management clients. He also teaches the individual and corporate income tax courses at Nebraska Wesleyan University. For more information, contact him at broberts@nebrwesleyan.edu. 5 That’s a good trade. Even if the deduction is fully allowed (which is certainly not a given today), the tax savings on the net $29,246 decrease in taxable income might help fund a substantial portion of the resulting administrative costs related to creation and operation of the trust. 17 www.nescpa.org
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