Commuting the Income Interest of Charitable Trusts
The dramatic growth over the last 10 years in equity markets, especially the tech sector, is likely to drive trustees of charitable trusts to examine the economic need to continue. Specifically, commutation of the income interest of a charitable lead trust (CLT) or a charitable remainder trust (CRT) might make sense. A commutation is an early termination of the trust, in which the income beneficiary and remainder beneficiaries trade their rights for lump-sum payouts. Let’s examine the issues to determine whether and how to do it.
CLT Prepayments
Historically, the Internal Revenue Service has been ready to disqualify a trust as a CLT when prepayments are permitted. In Revenue Ruling 88-27, the trustee’s discretion to prepay the CLT resulted…
