September 19, 2016
Authored by: Charles Lin and Stephanie Moll
One of the many requirements that a trust must meet in order for it to qualify as a Charitable Remainder Annuity Trust (“CRAT”) is the “Probability of Exhaustion Test”. This test applies to CRATs whose annuity term is based on one or more lifetimes, and requires the likelihood that the charitable remainder beneficiary will not receive its interest in the trust be 5% or less. If a trust fails the test, then the charitable remainder interest does not qualify for income, gift, or estate tax charitable deductions, and the trust is not exempt from income tax.