I recently heard my law partner talking about CRATs, CRUTs, and NIMCRUTS. It sounded like a foreign language. I assumed it had something to do with estate planning as that is an area of focus for him. He gave me a quick explanation.
I think I have it right when I say that a CRUT is a shorthand way of identifying a charitable remainder unitrust. That is a type of charitable remainder trust that typically offers greater returns and distributions than its cousin the charitable remainder annuity trust, a CRAT.
A CRUT is a tax-exempt structure well suited for appreciated assets that have not yet been sold. In exchange for donating some of the money in the trust to a charity, at the end of the trust’s term you may be allowed to defer the taxes you would otherwise pay when selling an asset and be able to grow your asset tax-free inside the trust. Plus, CRUTS carry an immediate charitable income tax deduction. It is designed to incentivize charitable giving.
With a standard CRUT, you may receive a set percentage of the trust assets each year. A NIMCRUT is a net income with makeup provisions charitable remainder unitrust with a spigot and flip provision to the standard charitable remainder trust after two years. A NIMCRUT allows you to defer distributions to future years.
FLIPCRUTS flip from a NIMCRUT structure to a standard CRUT after a predetermined event. The IRS has pointed some potentially abusive arrangements with the CRATs involving SPIAs, or single premium immediate annuities.
I may have to ask him again to make sure I have all this correct. As my college chemistry professor said “Ray, half of what I tell you is false, I just don’t know which half.” The key in all of this is to find a trusted advisor so your eleemosynary leanings are not abused.
Educational material and not legal advice, written by the team at Adler attorneys. Email andrea@noblesvilleattorney.com with questions or comments.