Estate Planner Jan-Feb 2006
A charitable remainder trust (CRT) allows you to support your favorite charities while
providing an income stream for yourself and generating a variety of tax benefits for you and your family. But new IRS rules may endanger those benefits unless you file additional paperwork.
The rules address laws in most noncommunity-property states that prevent you from
disinheriting your spouse. These rules give your surviving spouse a “right of election”
to receive a portion of your estate regardless of the terms of your estate plan.
The IRS was concerned that a surviving spouse could use the right of election to appropriate CRT assets that were intended for charity and were used to generate charitable deductions. To prevent this result, the new rules disqualify CRTs created on or after June 28, 2005, if they’re subject to a surviving spouse’s right of election (regardless of whether the right is actually exercised).
To preserve your CRT’s benefits, have your spouse sign an irrevocable waiver of his or her right of election against the CRT assets. Even if you live in a state where a waiver isn’t needed, it may be advantageous to get one anyway to protect your CRT in the event you relocate to a state where it is required.