Can the CRT include a grant review committee appointed by the donor?

Charitable Remainder Trusts (CRTs) are powerful estate planning tools allowing individuals to donate assets to charity while retaining income for themselves or designated beneficiaries, and the question of donor control, specifically through a grant review committee, is a nuanced one.

What are the limitations on donor control within a CRT?

While a donor *can* establish a CRT and specify the charitable beneficiaries, the IRS imposes strict limitations on the degree of control the donor (or their appointed committee) can exert over the trust’s distributions. The primary goal of a CRT is to ensure a substantial charitable remainder, meaning the charity ultimately receives a significant benefit. Excessive donor control could jeopardize this, leading to the trust being disqualified, and potentially resulting in no income tax benefits. The IRS generally scrutinizes any arrangement that allows the donor or their committee to effectively dictate *how* the charitable remainder is used beyond simply naming the beneficiary organization(s). Roughly 65% of CRTs are funded with highly appreciated stock, allowing donors to avoid immediate capital gains taxes, but this benefit relies on adhering to IRS guidelines.

How does a grant review committee impact the CRT’s tax-exempt status?

A grant review committee appointed by the donor is permissible, *provided* its role is limited to advising the trustee on *which* charitable organizations should receive distributions, not *how* those funds should be used by the charities. The committee’s function must be advisory only; the trustee retains the ultimate decision-making authority. If the committee has the power to direct the trustee to use the funds in a specific manner – for example, to fund a particular project within the charity – this could be construed as exercising control over the charitable remainder and jeopardize the trust’s tax-exempt status. It’s estimated that roughly 10-15% of initially established CRTs require amendment due to issues with donor control and IRS compliance.

What happened with Old Man Hemlock’s trust?

Old Man Hemlock, a retired lumber baron, established a CRT with the intention of supporting local environmental groups. He appointed a committee of his former logging buddies, thinking they’d best understand how to allocate the funds. Unfortunately, he gave them the power to approve *specific* reforestation projects within each charity, detailing tree species and planting techniques. The IRS flagged the trust during an audit, deeming it a non-qualifying CRT because the committee essentially dictated *how* the charities had to spend the money, not simply *which* charities received it. The trust lost its tax-exempt status, and Hemlock’s estate faced significant tax liabilities. It was a costly lesson in the importance of adhering to IRS guidelines.

How did the Miller family ensure their CRT was successful?

The Miller family, wanting to support medical research, established a CRT with a similar intention of appointing a grant review committee. However, they worked closely with Ted Cook, an estate planning attorney in San Diego, who advised them to limit the committee’s role to reviewing grant proposals submitted by qualified charities and making recommendations to the trustee. The trustee, an independent financial institution, retained final approval authority, ensuring compliance with IRS regulations. The committee’s recommendations were valuable, and the charities benefited immensely. The trust remained fully compliant, providing substantial tax benefits to the Miller family and supporting vital research for years to come. They understood that while donor intent is crucial, adhering to the letter of the law is paramount.

In conclusion, while appointing a grant review committee is feasible within a CRT, strict adherence to IRS guidelines is essential. The committee’s role must be advisory only, with the trustee retaining ultimate decision-making authority to ensure the trust’s tax-exempt status and achieve the donor’s charitable goals.


Who Is Ted Cook at Point Loma Estate Planning Law, APC.:

Point Loma Estate Planning Law, APC.

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