Overview

Main Menu Name: Inclusion

This calculation computes the portion of a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) that may be includible in the granor's gross estate if the grantor has retained the annuity or unitrust interest, or the portion of a grantor retained annuity trust (GRAT) or grantor retained unitrust (GRUT) that may be includible in the grantor's estate if death occurs before the trust term ends. The inclusion is calculated in accordance with the regulations under IRC §2036 that were published in T.D. 9414, 73 F.R. 40173 (7/14/2008)and became effective when published.

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation computes the portion of a charitable remainder annuity trust (CRAT) or charitable remainder unitrust (CRUT) that may be includible in the grantor's gross estate if the grantor has retained the annuity or unitrust interest, or the portion of a grantor retained annuity trust (GRAT) or grantor retained unitrust (GRUT) that may be includible in the grantor's estate if death occurs before the trust term ends. The inclusion is calculated in accordance with regulations under IRC §2036 that were published in T.D. 9414, 73 F.R. 40173 (7/14/2008) and became effective when published.

Under the regulations, the IRS will not attempt to apply IRC §2039 to require inclusion of any part of a CRAT, CRUT, GRAT, or GRUT.

In the case of a CRAT or GRAT, the inclusion is based on the amount of principal needed to produce an income equal to the annuity amount, which is calculated by dividing the annuity by the §7520 rate.

In the case of a CRUT or GRUT, the includable amount is determined in three steps as follows (i.e., the computation performed by the software):

• Find the "adjusted payout rate" for the unitrust amount
• Find equivalent income interest rate, which is the adjusted payout rate from step one divided by (1-adjusted payout rate).
• Find includable portion, which is the step 2 equivalent income interest rate divided by the §7520 rate.

To "bullet-proof" the tax savings, life insurance in the amount of the expected estate tax savings can be purchased by an adult beneficiary or by the trustee of an irrevocable trust.

Getting Started

Under the regulations, the IRS will not attempt to apply IRC §2039 to require inclusion of any part of a CRAT, CRUT, GRAT or GRUT.

In the case of a CRAT or GRAT, the inclusion is based on the amount of principal needed to produce an income equal to the annuity amount, which is calculated by dividing the annuity by the §7520 rate.

In the case of a CRUT or GRUT, the includible amount is determined in three steps as follows(i.e., the computation performed by the software):

Find the "adjusted payout rate" for the unitrust amount.

Find equivalent income interest rate, which is the adjusted payout rate from step one divided by (1-adjusted payout rate).

Find includible portion which is the step 2 equivalent income interest rate divided by the §7520 rate.

To "bullet-proof" the tax savings, life insurance in the amount of the expected estate tax savings can be purchased by an adult beneficiary or by the trustee of an irrevocable trust.

Entering Data

1.   Click the appropriate radio button to work with a CRAT/GRAT or CRUT/GRUT calculation.
2.   Transfer Date:  Enter the month and year (mm/yyyy).
3.   §7520 Rate:  The program automatically enters the correct §7520 discount rate if you have kept the AFR Rates Manager up-to-date. If the AFR Rates Manager is not up-to-date, the program shows a 30% value for the selected transfer date. The program automatically rounds the rate to the nearest 2/10 of 1% as required under §7520 .
4.   Trust Value at Death:  Enter the federal estate tax value of the assets in the trust.
5.   Total Annual Payments (appears only for CRATs/GRATs):  Enter the total amount paid each year.
6.   Annual Payout Rate (appears only for CRUTs/GRUTs):  Enter the annual payout rate.
7.   Payment Period:  Select the number of payments that were made each year (Annual, Semiannual, Quarterly, Monthly, or Weekly.)
8.   Months Valuation Precedes Payout (appears only for CRUTs/GRUTs):  Enter the number of full months by which the valuation date (for the assets of the unitrust) precedes the first payout in the first full taxable year of the trust (not the short first year).

Results

The program calculates the value of the amounts that are includible and excludable in the client's estate in accordance with the final regulations under IRC §2036.