Have you heard? More people can now use charitable remainder annuity trusts thanks to new IRS guidance in the form of Revenue Procedure 2016-42, issued recently.

A charitable remainder trust is an irrevocable trust that provides annuity payments to one or more non-charitable beneficiaries, with the remainder passing to charity. Due to certain restrictions, it can be difficult to qualify a charitable remainder trust in a low interest rate environment. For example, the “probability of exhaustion test” precludes qualification if there is more than a negligible chance that the annuity will deplete the trust such that charity receives nothing.

Using the current, August section 7520 interest rate of 1.4 percent, a 5 percent lifetime CRAT for a 73 year-old would flunk the probability of exhaustion test. The new Revenue Procedure, however, allows for an early termination provision in lieu of satisfying the probability of exhaustion test.

A charitable remainder trust may not be right for you; however, if you were interested in establishing a charitable remainder trust but thought it was not possible in the current low interest rate environment, you might wish to revisit this planning technique.