Important Information about Funding Your Charitable Remainder Trust, and Deducting the Funding Contribution

Please review the following important general information and share with your legal counsel.  Note that neither the PCA Foundation nor any of its employees or agents may or will provide to you legal or other professional advice, or legal or other particular information for your reliance, and neither may or will represent you or your interests.  We urge you to engage your own legal and other professional counsel to assist you in the consideration and making of any charitable gift.

Pre-Arranged Sale: Especially if you may fund your CRT with appreciated non-cash assets, note that the Internal Revenue Service treats a gift of property (real or personal, tangible or intangible) that is subject to a binding contract for sale as in effect (i) a sale of the property that produces taxable gain, followed by (ii) a gift of the after-tax sales proceeds, thereby significantly reducing the tax savings of the gift.  Persons contemplating funding a CRT with any kind of non-cash property should refrain from entering into any binding contract for sale of the property or binding letter of intent, whether written or verbal.  Proceed with discussions, and drive toward agreement, but refrain from binding agreement to any terms until after funding the CRT.

S Corporation Stock: Unfortunately, a CRT is not a permissible shareholder of an S corporation.  Accordingly, you may not fund your CRT with S corporation stock.

Unrelated Business Taxable Income (UBTI) and Debt: The Internal Revenue Code imposes on the unrelated business taxable income of a CRT a 100% excise tax; essentially, the IRS collects from a CRT all its UBTI.  What this means as a practical matter is that the CRT should not engage to any substantial extent in an unrelated business activity.  But it also means that a CRT should not hold an interest in a partnership or a limited liability company that has elected to be taxed as a partnership or a disregarded entity, at least if that partnership entity engages in active business rather than merely investment activity, since the CRT’s allocable portion of the partnership entity’s income is deemed to be UBTI.  Finally, the 100% excise tax means that a CRT should not be funded with any business interest or other asset that is subject to a lien for debt, since the income produced by debt-encumbered property is deemed to be UBTI (subject to certain exceptions).  In addition to creating UBTI, contributing property to the CRT that is encumbered by debt that is less than 10 years old may constitute self-dealing, which is subject to punitive excise taxes imposed on both the CRT and the donor or related person who engaged in the self-dealing.  Before giving any asset to a CRT that the CRT might not sell for any significant period of time, the donor should pay off all debt that encumbers the asset.  (An exception is that the donor need not pay off the debt if the encumbrance was placed on the asset more than 5 years before the funding, and the donor has held the asset for more than 5 years before the funding, and the CRT almost certainly will liquidate the asset within 10 years following the funding.)  In addition, a CRT donor should consider carefully with his qualified tax counsel whether the allocable income of even a real-estate or other investment partnership that is indebted may produce UBTI.  We will ask you to provide on the funding information form the debt that currently encumbers the asset to be given, and all debt of an interest to be given to the CRT in an entity that is taxed as a partnership.

Excess Business Holdings: The CRT essentially is prohibited from owning directly or indirectly for more than five years from the date of contribution an interest in any investment partnership, C corporation, or other company that when added to the interests of the donor and certain related persons equals more than 20% of the company.  We will ask you to provide on the funding information form the holdings of you or any related individual or entity in the company or any other business entity downstream from the company in the chain of ownership.  This business holdings section does not apply, and the associated part of the funding information form need not be completed, if neither the company nor any downstream entity engages in any active business (but note that active business includes real estate development).

Self-Dealing: Any self-dealing between a CRT and the donor or a related person, regardless of whether the economic exchange is fair value or not, such as the donor’s continued possession of real estate contributed to the CRT, with or without paying rent, is subject to punitive excise taxes imposed on both the CRT and the donor or related person who engages in the self-dealing.  Funding the CRT with an asset subject to debt that is less than 10 years old also constitutes self-dealing. 

Recapture and Other Ordinary Income: If the entity interest to be given to the CRT is an interest in an entity taxed as a partnership, the entity’s ownership of so-called “hot assets,” such as investment property subject to accelerated depreciation recapture, may significantly reduce the income tax savings of the CRT, and may even make the funding contribution to the CRT little more tax efficient than a gift of cash.  The CRT donor’s charitable income tax deduction is reduced by the amount of ordinary income the donor would have realized if he had sold the hot assets, and the amount of depreciation recapture or other income on hot assets realized upon sale of the entity will constitute unrelated business taxable income subject to the 100% excise tax discussed above.

Process: PCAF will review and assess the information and documentation for the funding asset that you provide, and will try to assure that the value of the funding asset is substantial and unencumbered (or able to be unencumbered), that the asset may be transferred, and generally that receiving the asset is likely to advance the charitable purposes of the CRT.

Responsibility for Requirements for Charitable-Contribution Deduction: Please note, as critically important, that you are responsible to identify and comply with all requirements to secure a charitable-contribution deduction for your contribution to the CRT.  The IRS insists on strict compliance with all such requirements.  We urge you to obtain the assistance of your own qualified professional counsel, and remind you that neither PCAF nor any of its staff may provide any legal or other professional advice or service to you, and this disclosure form may not include every requirement for securing a deduction for your particular gift under the circumstances.

Maintenance of Reliable Written Records: The applicable Treasury Regulations require you to maintain reliable written records of your funding contribution and the assets contributed, including records of how you acquired the asset and its cost basis, the date and location of the funding contribution, and the fair market value of the asset at the time of contribution.

Form 8283: You will need to complete and submit with your income tax return a Form 8283 if the deduction you will claim for your contribution to the CRT (of other than cash, marketable securities, or certain other kinds of property), or your contribution and other similar contributions you make to the CRT or any other done in the year, is more than $500. 

Appraisal: To claim a deduction of over $5,000 for a contribution to the CRT of an asset other than cash or marketable securities (or certain other kinds of property), you must obtain and retain indefinitely in your records a “qualified appraisal” prepared, signed, and dated by a “qualified appraiser.”  To qualify, both the appraisal and appraiser must meet certification and multiple other specific requirements laid out in the Internal Revenue Code and Treasury Regulations for purposes of the rules for deducting charitable contributions.  You must obtain the appraisal (it must be signed and dated, and in your possession) no earlier than 60 days prior to the contribution date, and no later than the due date for your income tax return.  The appraisal must value the funding asset as of a date no earlier than 60 days prior to the contribution date, and no later than the contribution date, if the appraisal is dated prior to the contribution date.  The appraisal must value the asset as of the contribution date if it is dated on or after that date.  You may want to review IRS Publications 526 and 561 to better and more comprehensively understand the rules, but again, we encourage you to engage professional counsel.

To claim a deduction of over $500,000 for a contribution to the CRT of an asset other than cash or marketable securities (or certain other kinds of property), you must attach the qualified appraisal to your income tax return.


Form 8282: When the Foundation as trustee of the CRT liquidates or otherwise disposes of most assets contributed to it, other than cash or publicly traded securities, within 3 years of receiving the contribution, it must file a Form 8282 to report such disposition.  We eventually will need your Social Security number to be able to complete this form.

PCAF System Use Agreement:  The System Use and Gift Agreement (“Agreement”) to which we have asked or will ask you to agree when you enrolled or will enroll for your donor-advised fund here establishes your and PCAF’s respective rights and obligations with regard to our interaction in charitable ministry.  The Agreement, as amended from time to time, is available on our website at

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