Dryburgh emphasized that with a CRAT, as opposed to a charitable remainder unitrust (CRUT), the risk is all on the charity, until the trust is exhausted.  Settlors who are the income beneficiaries of a CRAT and who are not informed about the trust's performance (beyond the constant income payments) may be shocked to learn that the trust will bust and leave nothing to the charity.

There may be some risks associated with the counsel or advice given to the donor in setting up a charitable remainder trust (CRT).  Dryburgh noted the following areas where there may be problems:

1. Is a CRT an appropriate vehicle for the donor?
2. If yes, which type of CRT is most appropriate to accomplish the donor's goals?
3. What assets are appropriate to fund the CRT? 
4. Are the CRT documents appropriately drafted? 

While attorneys are often asked to review the fourth area after something goes wrong, generally, the problems lie in areas 1-3.

Dryburgh covered the different investment standards of trusts and corporations and emphasized the importance of process.  While most CRTs may not have investment policies, unlike some of the more sophisticated private foundations, it would be a good sign of prudence to develop and adhere to an appropriate policy, particularly after the Madoff scandal.  Reliance on experts may also help protect trustees and directors from breaching their duties of care.

Dryburgh next discussed possible solutions for underwater CRTs.

• Let the CRT run its course (keep paying income until the assets are exhausted, leaving nothing for the charity).
• Gift the income interest to the charity. The donor may get a charitable contribution deduction, but an appraisal is generally required.  The CRT may be terminated (1) automatically via merger; (2) via written consent of all settlors and beneficiaries (Cal. Prob. Code 15404); or via Probate Court order.
• Terminate the CRT in favor of both the income beneficiaries and the charity based on actuarial values.  Despite some ads claiming otherwise, Dryburgh states that "[t]his technique does not work if the remainder beneficiary is the donor's private foundation, as the deemed "sale" of the income interest is an act of self-dealing (PLR 200614032)"

Dryburgh closed by discussing the scenario for private foundations that suffered substantial losses and determined that it would be inefficient and/or too burdensome to continue operating. Many are opting to terminate and grant their remaining assets to a donor-advised fund, like those available at a community foundation.  "By being involved in a local organization like The San Francisco Foundation, they stay involved in grantmaking while benefiting from a lower cost structure, grantmaking expertise, and educational opportunities."