Robert S. Keebler on "Charitable Remainder Trust and the 3.8% Medicare Surtax"

"The 3.8% Medicare surtax on net investment income is set to take effect on Jan. 1, 2013.

Charitable Remainder Trust and the 3.8% Medicare Surtax

Surtax etc... Chart/Table

On November 30, 2012, the US Treasury issued treasury regulations
addressing...the new 3.8% healthcare surtax.

...there are two urgent planning opportunities that are important to CPAs and their clients.

First, to the extent that income can be accelerated in 2012, this will save 3.8%.

For example, harvesting gains, triggering accrued interest, income and dividends,
accelerated rents and other royalties will all save on the surtax.

Likewise, deferring investment expenses into 2013
will provide an income tax deduction against the surtax, saving an extra 3.8%.

This savings does not include any savings that would occur
by virtue of any increase in the base tax rate.

...there is an urgent and immediate planning opportunity
for existing charitable remainder trusts.

A CRT is not taxed directly, but distributions from a CRT are taxed to beneficiaries
under ...section 664, often called the WIFO, W-I-F-O, worst-in, first-out method of accounting.

Distributions from charitable remainder trusts will be subject to a 3.8% surtax.

...distributions of net investment income from a CRT will be taxable to the beneficiaries.

...income that was realized and recognized prior to December 31, 2012
will be grandfathered from the surtax.

Deferring loss and expenses into 2013 will also reduce the tax burden on future distributions.

The action steps needed for a charitable remainder trust
are to harvest long-term capital gains in 2012,
accelerate interest, dividends and other income in 2012, defer harvesting losses into 2013,
and defer expenses into 2013.

By taking these important steps
you will likely reduce your clients’ future exposure to the 3.8% healthcare surtax.

On behalf of the PFP Division of the American Institute of Certified Public Accountants,
this has been Bob Keebler."

Robert S. Keebler, CPA, MST, DEP, Partner, Keebler & Associates, LLP