PG Calc Insights: IRS Releases Latest Statistics on Planned Gifts

The IRS recently published its latest statistics on split interest trusts - charitable remainder trusts (CRTs), charitable lead trusts (CLTs), and pooled income funds (PIFs). The statistics are based on the information reported on Form 5227s filed during calendar year 2011, so they largely reflect 2010 activity. The IRS also has released a paper that analyzes these statistics and provides substantial additional detail about these gift plans.  

You can see the statistics and the papers for yourself by going to the IRS site. The rest of this post highlights some of the very interesting information I have gleaned from there.

Basic Split-Interest Gift Statistics
The table below summarizes information found in separate tables on the IRS site. It gives you a good picture of the number and value of CRTs, CLTs, and PIFs nationwide.

Note: The dollar amounts are in thousands of dollars, so what appears to be millions in total net assets for each gift type is actually billions.

Split-interest trust statistics from the IRS based on Form 5227s filed in 2011

     EOY Book Value (Total Assets)   EOY Book Value (Total Assets)   EOY Book Value (Total Assets)   EOY Book Value (Total Assets) EOY Book Value (Total Assets)
 Item  Total Under $500,000 $500,000
under
$1,000,000 
$1,000,000
under
$3,000,000 
$3,000,000
under
$10,000,000 
 $10,000,000
or more
  CLT # of returns  6,617 2,864 1,436 1,306 706 305
 Change from 2010
 0.1%  -4.2%  9.3%  -5.5%  12.2%  4.1%
 CLT Total net assets (Ave value $3,165,337)
 $20,945,036  $395,042  $984,235 $2,159,982  $3,726,160  $13,679,616
 Change from 2010
 8.3%  -9.0%  9.0%  -3.4%  17.5%  8.6%
 CRAT # of returns
 15,862  12,854  1,652  1,019  275  62
 Change from 2010
 -6.3%  -5.9%  -10.9%  -5.0%  -3.2%  1.6%
 CRAT Total net assets (Ave value $449,917)  $7,136,591  $1,411,278  $1,183,074  $1,646,130  $1,357,376 $1,538,369
Change from 2010  -4.8%  -2.4%  -11.3%  -3.0%  -3.2%  1.6%
 CRUT # of returns  93,828  67,211  13,897  9,336  2,642  713
  Change from 2010  0.0%  1.0%  -3.7%  -1.0%  -1.1%  -0.3%
 CRUT Total net assets (Ave value $926,175)
 $86,901,148  $11,668,938  $9,713,830  $14,870,406  $13,180,605  $37,467,369
 Change from 2010
 -5.1%  0.2%  -3.4%  2.0%  -1.0%  -9.5%
 PIF # of returns
 1,402  1,070  116  121  71  24
 Change from 2010
 -0.6%  -0.8%  -1.7%  -3.2%  12.7%  -4.0%
  PIF Total net assets (Ave value $935,418)  $1,311,456  $127,767  $82,384  $192,575  $365,321  $543,408
Change from 2010
 2.7%  4.4%  8.0%  -4.6%  8.3%  0.8%

As you might expect, IRS statistics show that charitable remainder unitrusts (CRUTs) are by far the most common of the four vehicles listed, outnumbering charitable remainder annuity trusts (CRATs) six-fold, charitable lead trusts (lead annuity trusts and lead unitrusts combined) over 14-fold, and PIFs 67-fold. CRUTs also hold the greatest value in assets, but here CLTs, perhaps surprisingly, come in second, and CRATs a distant third. In other words, CLTs tend to be very large. The average book value of a CLT in 2011 was over $3.1 million, far larger than the average value of a charitable remainder trust or pooled income fund. Nevertheless, a substantial fraction of CLTs, 43%, had a book value of less than $500,000.

When you compare these statistics for 2011 and 2010, you see a 5% decline in the total book value of charitable remainder trusts versus an 8.3% increase in the total book value of charitable lead trusts. The persistence of extremely low IRS discount rates during this period, which work to the advantage of charitable lead annuity trusts, probably explains the robust CLT numbers. Surprisingly, there was an uptick in the total book value of PIFs (2.7%) during this period, but they remain barely 1% of the value of all split-interest trusts.

Benefit to Charity
The statistics above are interesting, but they only hint at the benefit each type of split-interest gift provides to charity. The table below combines the values found in separate tables provided in the IRS’s analysis of the 2011 statistics.

Total Charitable Distributions, by Type of Trust and Charity Type, Filing Year 2011*
(All figures are estimates based on samples - money amounts are in thousands of dollars).

  All
Number
All
Amount
CRTs**
Number

CRTs**
Amount

CLTs
Number
CLTs
Amount
PIFs
Number
PIFs
Amount
Total 27,992 $3,066,001 $10,084 $1,905,209 17,348 $1,119,219 561 $40,573
Arts, Culture, Humanities 2,575 $158,759 632 $118,253 1,937 $39,759 6 $746
Education 6,275 $741,872 2,634 $586,612 3,352 $135,481 289 $19,779
Environment, Animals 1,789 $30,148 359 $18,101 1,397 $10,189 33 $1,950
Health 3,103 $264,817 971 $234,306 2,068 $29,296 64 $1,216
Human Services 4,104 $99,460 932 $72,069 3,098 $26,292 73 $1,098
International, Foreign Affairs 827 $21,028 248 $15,801 579 $5,227 0 $0
Public, Societal Benefit 4,580 $1,492,081 1,262 $683,743 3,268 $796,286 50 $12,052
Religion 4,372 $194,896 2,939 $154,884 1,399 $36,297 36 $3,714
Membership Benefit Orgs 12 $21 0 $0 1 $4 11 $17
Other 354 $61,917 106 $21,529 248 $40,388 0 $0

*Values in this table determined by adding values for distributions of principal and distributions of income.

**CRT values determined by adding values for distributions from CRATs and distributions from CRUTs.

The values in this table reveal some surprising facts. One that jumps out is that in 2011 lead trusts distributed to charity about 60% as much as CRTs: $1.12 billion versus $1.91 billion.  Which is to say, comparing book values overlooks an essential difference between CLTs and CRTs: CLTs distribute funds to charity every year of their existence while almost all CRTs distribute funds to charity just once at their very end.

Notably, the statistics from two years earlier (2009 filings) showed CLTs distributing not “just” 60% as much, but a full 96% as much to charity as CRTs: $1.22 billion versus $1.27 billion. Why did CRT distributions to charity increase 50% from 2009 to 2011 while CLT distributions to charity declined 8%?

I think the answer rests with IRS statistics that show that what really increased were CRT distributions of principal (CRT distributions of income actually declined during the period). During 2008 – 2010 (again, the period filings in 2009 and 2011 cover), asset values rebounded strongly from their financial crisis lows. The S&P 500 increased 40% during this period, for example. It stands to reason, then, that the value of the assets held in terminating CRTs increased markedly during this period and that charities reaped the benefit of these increased asset values. Although the IRS does not break down CLT statistics between annuity trusts and unitrusts, experience strongly suggests that most CLTs make fixed payments to charity that would not be affected by fluctuations in asset values.

The experience of 2008 - 2010 drives home an important point that I would guess few gift planners pay attention to. The benefit to charity of a CRT, whether an annuity trust or a unitrust, depends a lot on timing, not just in terms of when the trust terminates, but also in terms of the unpredictable nature of the market.  The benefits of a CLT are not prone to the same timing issues.

Conclusion
To me, the most surprising fact to emerge from the IRS data is that charitable distributions by charitable remainder trusts increased 50% in just two years. Upon reflection, I shouldn’t have been so surprised given the strong performance of stocks during 2008 – 2010, but it serves as a good reminder that CRT benefits are closely tied to asset performance.

The data also reaffirm that CLTs play a much larger role in benefitting charities than their number, or even their total asset value would imply. The Federal Reserve has stated publicly that it intends to maintain extremely low interest rates through at least 2014. The IRS discount rate should remain historically low as a result. This means that CLTs should remain unusually attractive for many months to come.

The IRS paper for the 2011 filing year contains much more data and analysis than I’ve reviewed here. I encourage you to read it for yourself and draw your own conclusions.