The Highs and Lows of Rising Interest Rates

On the other hand, charitable remainder trusts offer more advantages when the Section 7520 rate is high. Using the same example of a $1 million charitable remainder annuity trust (CRAT) having a 5 percent payout to the donor’s child for a 10-year period, with the principal then paid to charity, if the Section 7520 rate is 5.4 percent, the value of the charitable remainder at the inception of the trust is $621,305 and the present value of the child’s right to receive $50,000 a year for 10 years is $378,695 ($1 million minus $621,305). However, if the Section 7520 rate is 3.4 percent, the value of the charitable remainder drops to $582,065 and the value of the gift to the donor’s child increases to $417,935.

Variances in the Section 7520 rate affect the values in charitable giving, making some techniques such as a CRAT more advantageous in times when the rate is high and others such as a charitable lead annuity trust (CLAT) more advantageous when the rate is low. It’s important to know how the rates will impact a potential donor’s charitable deduction.

New sample CRUT forms
The IRS has released eight new sample charitable remainder unitrust (CRUT) forms in Revenue Procedure 2005-52 through 2005-59, replacing sample forms issued in 1990. The following forms were issued:

* Inter vivos CRUT for one measuring life — Rev. Proc. 2005-52.

* Inter vivos CRUT for a term of years — Rev. Proc. 2005-53.

* Inter vivos CRUT with consecutive interests for two measuring lives — Rev. Proc. 2005-54.

* Inter vivos CRUT for concurrent and consecutive interests for two measuring lives — Rev. Proc. 2005-55.

* Testamentary CRUT for one measuring life — Rev. Proc. 2005-56.

* Testamentary CRUT for a term of years — Rev. Proc. 2005-57.

* Testamentary CRUT with consecutive interests for two measuring lives — Rev. Proc. 2005-58.