Life and Death Planning for Retirement Benefits

Chapter 7: Charitable Giving

391

A CRT generally pays no income tax itself (see ¶ 7.5.04 ), but:

A. Retirement benefits and UBTI. In years prior to 2007, a CRT that received unrelated business taxable income (UBTI) lost its income tax exemption for the year of such receipt. In post-2007 years, there is a 100 percent tax on the UBTI of a CRT (but its other income for the year is tax-exempt). § 664(c)(2) . PLRs 9237020 and 9253038 involved CRTs that were to be named as beneficiaries of retirement benefits. The IRS ruled that the trusts in question qualified as CRTs (and thus were tax-exempt as long as they did not have UBTI), and that retirement plan death benefits payable to the trusts would be IRD and have the same character as the income would have had if it had been paid to the deceased participant. These rulings thus imply that retirement plan distributions are not UBTI. B. The multi-tier CRT accounting system. A CRT has a unique internal accounting system, under which every dollar that the CRT receives is allocated to one of several “tiers” based on its federal income tax character (such as ordinary income, capital gain, tax-exempt income, or principal). § 664(b) .