Year-End Planning Strategy for Charitable Remainder Trusts

The Health Care and Education Reconciliation Act of 2010, often referred to as Obamacare, added IRC Section 1411 which imposes a new 3.8% surtax on most net investment income of individuals, estates and trusts.

On November 30, 2012, the IRS issued proposed regulations and FAQs regarding, inter alia, this surtax.  Under the proposal, special computational rules for charitable remainder trusts (CRTs) will apply to 2013 and future tax years. 

Observation:  Under the proposed regulations, while CRTs are exempt from the new 3.8% surtax, distributions of post-December 31, 2012 net investment income of CRTs will be subject to the 3.8% surtax. 

Accordingly, harvesting long-term capital gains and other investment income in calendar year 2012 will likely reduce the surtax burden on post 2012 CRT distributions.

Observation:  Conversely, deferring the realization of losses from the sale of  CRT assets and deferring the payment of  expenses until 2013 or later will likely reduce the surtax burden on future CRT distributions.

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