Erik Dryburgh of Adler & Colvin presented a program for the San Francisco Foundation on April 28, 2009 titled "Charitable Trusts and the Financial Meltdown: What to do With Underwater CRTs and Foundations." Dryburgh opened the program describing the scenario as a "philanthropic train wreck." He noted that some commentators suggest that half of the 30,000 charitable remainder annuity trusts (CRATs) will ultimately crash due to tanking investments and overly optimistic payout rates determined during better economic times, using mortality tables (based on the 1990 census) that substantially underestimate the life expectancies of the annuitants.
- Is a CRT an appropriate vehicle for the donor?
- If yes, which type of CRT is most appropriate to accomplish the donor's goals?
- What assets are appropriate to fund the CRT?
- Are the CRT documents appropriately drafted?
- Let the CRT run its course (keep paying income until the assets are exhausted, leaving nothing for the charity).
- Gift the income interest to the charity. The donor may get a charitable contribution deduction, but an appraisal is generally required. The CRT may be terminated (1) automatically via merger; (2) via written consent of all settlors and beneficiaries (Cal. Prob. Code 15404); or via Probate Court order.
- Terminate the CRT in favor of both the income beneficiaries and the charity based on actuarial values. Despite some ads claiming otherwise, Dryburgh states that "[t]his technique does not work if the remainder beneficiary is the donor's private foundation, as the deemed "sale" of the income interest is an act of self-dealing (PLR 200614032)"