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Click play below to listen to a conference call regarding the Iraqi Dinar and Charitable Remainder Trusts.

Using Dinars in Charitable Remainer Trusts

Many people have invested in the Iraqi Dinar hoping that its rise in value will create a profit for them.  Currencies having international value are traded daily around the world and the buying and selling of currencies is a major investment field. 
            The problem becomes one of redeeming the funds with the smallest possible tax loss.
One option is the Charitable Remainder Annuity Trust that is described in detail below.  This is a trust in a Federal format acceptable to the IRS and can be used by residents in any state. An independent Trustee manages the CRAT and the funds that it holds.  He pays the designated income beneficiary the payments at an agreed upon schedule.  A copy of the Trust instrument as well as other forms is registered with the IRS at the onset.  The Donor has the following rights:

  1. The right to designate the income beneficiary
  2. The right to determine the length of the CRAT
  3. The right to name the Charitable Remainderman or several
  4. The right to an annual accounting
  5. The right to designate a successor income beneficiary
  6. The right to the income tax deduction allowed by he CRAT

There is an appointed Trustee and successor Trustees who are legally disinterested parties.  The Trustees are paid an annual Trustee’s Fee from CRAT earnings, paid monthly, for the duration of the CRAT. This fee is set at 1% of the initial value of the gift.  The Trustee will pay the income beneficiary, or their designee, as specified in the CRAT.  The Trustees, California attorneys, will defend any and all legal actions against the CRAT and make all investments in their own best judgment.
            The Donor realizes that the gift transferred to the CRAT is an irrevocable, charitable gift that no longer belongs to them.  All control belongs exclusively to the Trustee.  The Donor is advised to seek professional and family counsel prior to entering into a CRAT agreement.  What a Donor is accomplishing is irrevocably exchanging a highly appreciated asset for a tax-favored income stream for a set period of time, receiving a generous tax deduction and benefitting a charity, or charities, of their choosing at the end of the term of the trust.

This is a copy of a letter sent to an enquirer concerning a Charitable Remainder Annuity Trust.


3 November 2011

Mr. O.
Russelville, Ark. 72801

Greetings Mr. O.,

            As per your request I am enclosing information and sample calculations for a Charitable Remainder Annuity Trust (or CRAT). These are found in Sec. 664 of the IRS Code and have been in use since 1976 with a few minor modifications.  Basically, it is a delayed irrevocable
charitable gift with a reversionary income stream paid to the donor.  A Donor unconditionally gifts an asset of appreciated value to the Trustee of the CRAT.  The Trustee sells the asset to a Buyer.  Since the sale is by a charitable entity, there is no income or capital gains tax due.  The Trustee then invests the proceeds to pay the Donor an income stream for either (1) their lifetime, or (2) a set number of years.
            The income stream can be monthly, quarterly, semi-annually or annually. This is determined by the Donor when the CRAT is set up.  Sec. 664 of the IRS Code requires that at the end of the term of the CRAT than an amount equal to 10% of the original gift go to an
IRS-recognized charity.  This is called the Charitable Remainderman.  The Donor has the right to select this charity or several.
            Taxation of the income stream depends upon the types of investments used.  The income stream paid to the Donor can be taxed at (1) income tax rates, (2) capital gains tax rates or, (3) a combination of these rates depending on the investments.  If the income stream is a return of principal then there is no taxes due.  The IRS understands that much of the income stream will be the return of principal and only earned interest would be taxable.
            Our strategy has been to use annuity contracts from insurance companies.  They are predictable, irrevocable contracts which are insured against loss.  The IRS tables determine how much can be paid to the Donor and earnings over and above this pay the Trustee.  Any excess income earned beyond these will eventually go to the designated charity.
            I have included a calculation based on a $5,000,000 gift for the sake of simplicity.  If a Donor placed this sum into a CRAT with a duration of 15 years, they would receive a monthly income stream of approximately $28,000 per month for 180 consecutive months. Over 15 years this would total $5,040,000 of which $5,000,000 would be return of principal.  Only $40,000 would be taxable income. The charity would receive approximately $527,180 at the end of the CRAT.  The Donor would also receive a Federal Income Tax deduction of $527,651 which the Donor could use applied to the first 5 years of the CRAT or until exhausted.  Please keep in mind that all of these numbers are approximate.  They are influenced by a formula established by the IRS and one feature of that formula, the AFMR (Average Federal Mid Term Rate) changes monthly as per the Treasury Department.  The AFMR for this month is a very low 1.45%.  Depending on the value of the donated asset and the prevailing AFMR the income stream could be more or less than the included calculations.
            The alternative is redeeming the Dinars for yourself.  This would be taxable income with a Federal Tax Rate of 35% and an Arkansas tax rate of 7% for a total tax loss of 42%.  If you chose the CRAT you would receive a largely tax-free income stream of $28,000 per month ($336,000 per year for 15 years).  If you chose to cash in the Dinars for $5,000,000 you would retain only $2,900,000 after taxes. 
            The CRAT trust instrument is a federal format which we have used for a number of years very successfully.  It is registered with the IRS and has its own EIN number.  If you were to die during the 15 year income stream period, payments would continue through the 180th month to your designee (successor beneficiary).  Payments are made monthly through an electronic bank transfer made by the Trustee.  I advise you to carefully discuss this with family members, your financial advisor or attorney.  Once made, this is an irrevocable decision.
            If you have further questions do not hesitate to call me at 209-574-9451.

Most sincerely,


Craig Hatcher, CEP


In General

1.  The asset to be donated must be fully owned by the Donor and have no existing mortgages, liens, indebtedness, legal complications, nor environmental concerns.  Prior to donation, the Donor must arrange an awaiting Buyer for the donated asset to purchase such from the Trustee of the CRT at a negotiated price.

2.  If the asset to be donated is real property (personal, agricultural, industrial, or commercial) there must be an awaiting, qualified, ready Buyer to whom the Trustee will sell the property from the Trust.  Property sales must be for full cash value.  The trust cannot be a private mortgage holder for the Buyer with the Buyer making payments to the Trust.

3.  The actual value of the donated asset will be determined by the final sales price which the Trustee attains.  This may be greater or less than what the Donor originally assumed.

Acceptable Donations

1.  Real property may be donated.  It can be residential, agricultural, industrial, or commercial in nature.

2.  Stocks and bonds can be donated based upon the value of such at the time of donation.

3.  Jewelry, artwork, and valuable collectables may be donated; however the donation must be accompanied by a professional appraisal made by an appraiser registered to be such with the Internal Revenue Service.  Jewelry and artwork created by the donor will be limited in value to the actual materials used to create the work [IRS standard ruling].

4.  Life Insurance company annuities.  A Non-Qualified Annuity contract may be an acceptable donation for a CRT; however the earned interest attained by the Annuity is taxable to the Donor prior to donation.  The allowable income tax deduction from the CRT may offset the taxable amount of the donated Annuity.  This varies on a case-by-case examination.

5.  Patents, copyrights, and memberships in organizations may be donated on a careful case-by-case examination provided a ready-Buyer is waiting.  These are assets lacking a present ascertainable value but may be given if there is a realistic Buyer available.

Declined Donations

1.  These consist of traditional IRA accounts, 401(k) plans, 403(b) plans, and other tax-favored plans.  The liquidation of these funds makes them 100% taxable for Federal and State income tax purposes, thus substantially reducing their value.
2.  Assets involved in legal actions or which have environmental difficulties will be declined by the Trustee.

3.  A Charitable Remainder Trust cannot continue to manage nor hold title to an operating business entity.  The Trust may sell the business entity to a qualified, ready Buyer, but cannot become a charitable business entity in itself.

Tax Issues Concerning Donations to a Charitable Remainder Trust

1.  In all cases, an appreciated asset donated to the Trustee of a Charitable Remainder Trust when sold by the Trustee (only), is exempt from Federal and State Capital Gains Taxes [IRC 664].

2.  An income tax deduction is allowed for the Donor on a percentage of the value of the asset donated.  This income tax deduction can carry-over for the initial 5 years of the trust until exhausted.  The income tax deduction will be determined by the term of the trust in years and by the prevailing AFR rate appropriate for the year and month of the trust's preparation.

3.  Part of the value of the donated gift will remain with the Donor's taxable estate for Federal Estate Tax purposes.  This remaining value will equal the calculated charitable deduction allowed.  Items 1 and 2 of this section apply because of the charitable reversionary income nature of the trust.

In a Nutshell

The Donor is making an irrevocable gift of an asset with appreciated value to the Trustee of the Charitable Remainder Trust.  Because the CRT is a tax-exempt entity the Trustee can sell the asset free of any taxes.  This accomplishes stepped-up valuation of the gift when the Trustee sells it.  The Trustee (in his absolute discretion) invests the funds held by the CRAT and pays an income stream to the Donor for the terms of the trust.  The income will be partially taxable (on average 92% is income tax exempt).

We only prepare Term Charitable Remainder Annuity Trusts.  These can last from 1 year to 20 determined by the Donor.  Should the Donor die prior to the end of the trust, the income stream will continue to their designated Successor Beneficiaries until the trust ends.
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