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Charitable Remainder Trust Presentation
 

Charitable Remainder Trust Presentation

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Benefits of a Charitable Remainder Trust

Benefits of a Charitable Remainder Trust

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Charitable Remainder Trust Presentation Charitable Remainder Trust Presentation Presentation Transcript

  • Financial Advisor Series
    • Charitable Trusts
    • Presented by
    • Brett Sanner
    • Raymond James Financial
    • Suzanne M. Graves
    • Law Offices of Suzanne M. Graves, Inc.
  • Estate Planning Overview
    • Most Estate Plans Just Don’t Work!
  • Estate Planning Overview
    • Keys to an effective Estate Plan
    • Proper Asset Ownership (Title)
    • Control the Process
      • Know what to do
      • Know how to do it
      • Know how to pay for it
  • Estate Planning Overview
    • Definition of Estate Planning
    • I want to control my property while I am alive and well,
    • Plan for the care of me and my loved ones if I become disabled ;
    • When I want, give What I have to Whom I want, and the Way I want, with fully disclosed and controlled costs to me and my family.
  • Estate Planning Overview
    • The Estate Planning Pyramid
    • Focuses on Client Goals
    • “ Solutions” make planning easier
    • Exposes Traditional planning as “upside down”
  • Estate Planning Overview Estate Planning Pyramid “ No one-size-fits-all solutions.”
    • taxes and costs
    • increasing assets
    • preserving your assets
    • information about family
    • Client (goals, fears, dreams)
    Peter Lynch
  • Estate Planning Overview Approach
    • Traditional
    • Reactive
    • Truth
    • Proactive
  • Estate Planning Overview Control
    • Traditional
    • By Others
    • Truth
    • Rests With
    • Client
  • Estate Planning Overview Client Education
    • Traditional
    • Minimal,
    • Much After
    • Death
    • Truth
    • Increased and
    • as Soon as
    • Possible
  • Estate Planning Overview Client Understanding / Comfort
    • Traditional
    • Minimal / Low
    • Truth
    • Increased
  • Estate Planning Overview Team Approach
    • Traditional
    • Infrequent Use
    • Truth
    • Requirement
  • Estate Planning Overview Funding
    • Traditional
    • After Death
    • (With Increased
    • Expense)
    • Truth
    • Current and
    • Continuous
  • Estate Planning Overview Personal Instructions
    • Traditional
    • Minimal to
    • None
    • Truth
    • Substantial
    • (& Encouraged)
  • Estate Planning Overview Updating
    • Traditional
    • Infrequent or
    • Non-Existent
    • Truth
    • Continuous
  • Estate Planning Overview Fees
    • Traditional
    • Little Known,
    • Primarily after
    • Death
    • Truth
    • Fully Disclosed,
    • Higher Initially,
    • Lower Overall
  • Legal Counselling For an Estate Plan that will Work:
    • 1. Work with a Counseling Oriented Attorney
    • 2. Establish and maintain Formal Updating program
    • 3. Assure Controlled settlement costs after death
  • Legal Counselling Some common goals we discover:
    • Take care of family (now & later)
    • Diversify assets/take profits without paying capital gain tax
    • Avoid estate taxes
    • Support some social/charitable interest
  • Legal Counselling Clients’ choice for their wealth: Pick and allocate to at least two.
    • At death to my Family ____%
    • At death to my Country ____%
    • At death to my Charities ____%
    • Total will equal 100%
  • Charitable Planning Basics Charitable Deductions
    • Amount you give to charity entitles you to an income tax deduction
    • Write off up to 50% of your AGI
    • Example:
      • Made $80,000 this year
      • Contribute $20,000 to 501(c)(3) organization
      • Pay income tax on $60,000
  • Charitable Planning Basics Charitable Deductions
    • Donate appreciated assets
    • Stock you bought for $5,000 but now is worth $20,000
    • If you do anything else with that stock, it is only worth $17,000 ($3000 less)
    • Capital gain taxes of 20% of $15,000
    • Contribute: tax deduction for $20,000
  • Charitable Planning Basics Split Interest Gift Trusts
    • Form a Trust - an agreement
    • One party gets the Income for a term - a defined period of time
    • The other party gets the assets later - the Remainder
    • Wealth is like an orchard you’ve built up over a lifetime. Taxes take the trees. When the trees are gone, no more apples!
  • Charitable Remainder Trusts
    • Charitable Remainder Trusts
      • You keep the apples for life, and the charity gets the trees when you die
      • Use some of the apples to replace the orchard for your kids
  • Charitable Remainder Trust
    • Donate an asset to the Trust
      • highly appreciated asset works best
    • Sell and reinvest proceeds (diversified for safety and at higher rate of return)
    • Keep income (some tax-free) for life
    • Use excess income to buy tax free insurance policy in “ILIT”
    • At death everything goes tax-free!
  • Charitable Remainder Trust John & Mary
  • Charitable Remainder Trust John & Mary Asset placed in Trust CRT Income Trust
  • Charitable Remainder Trust John & Mary CRT Income Trust Income for life
  • Charitable Remainder Trust John & Mary, Deceased CRT Income Trust 501(c)(3) Charity Receives remainder
  • Charitable Remainder Trust John & Mary, Deceased CRT Income Trust The transaction is a gift to the end Beneficiary, subject to the retained right to income for a number of years. 501(c)(3) Charity Receives remainder
  • Charitable Remainder Trust
    • What good is a CRT?
    • Provide future benefit to charity of choice
    • Take profits: Liquidate appreciated asset without paying capital gain taxes
    • Diversify client’s investments
    • Current income tax deduction
    • Removes asset from taxable estate
  • Charitable Remainder Trust Bank Stock worth $3,000,000 Basis $100,000
    • Increase Income
    • Current income:
      • dividend 2.5% $75,000 ----------------------------------------------------------------------------------------------------------------------------------------------------
      • Transfer to CRT, sell stock,
      • reinvest, take 7% per year $210,000
    • Increase of $135,000
    • Bonus! Up to $105,000 for 6 years is income tax free!
  • Charitable Remainder Trust Bank Stock worth $3,000,000 Basis $100,000
    • Avoid Capital Gain Tax/Increase Income
    • Sell as is, lose 20% of $2.9M gain
      • lost $ 580,000 ; balance of $2,420,000
      • invested at 7% return $169,400 -----------------------------------------------------------------------------------------------------------------------------------------------------
    • Using CRT, sell stock, no capital gain tax
      • reinvest full $3M at 7% $210,000
    • Increase per year of $40,600
  • Charitable Remainder Trust Bank Stock worth $3,000,000
    • Also avoid Estate Tax
    • $3M >> $2,420,000 after Cap Gain tax $580,000
    • Death: estate taxes (if have other assets) $1,121,700
    • To IRS from original $3M: $1,701,700
    • To Heirs from original $3M: $1,298,300 -----------------------------------------------------------------------------------------------------------------------------------------------------
    • Using CRT & investing some of the extra $40,600 into a guaranteed $3,000,000 Life Insurance Trust
    • To Charity at Death $3,000,000
    • To Heirs at Death $3,000,000
    • TO IRS: $0
  • Charitable Remainder Trust PLUS John & Mary Income for life Asset placed in Trust Charitable Remainder Trust
  • Charitable Remainder Trust PLUS John & Mary Income for life Asset placed in Trust Charitable Remainder Trust From extra income, invest small Gifts into Trust Life Insurance Trust
  • Charitable Remainder Trust PLUS John & Mary Family Receives $3,000,000 Charity Receives $3,000,000 No Death Taxes!! Income for life Asset placed in Trust Charitable Remainder Trust From extra income, invest small Gifts into Trust Life Insurance Trust
  • CRT Variations: CRAT
    • Charitable Remainder Annuity Trust
    • Income paid back to Trustmaker is a fixed dollar amount, much like a fixed annuity for life (or a set term)
    • Contribute $100,000, receive an annuity payment of $7,000 per year for life
  • CRT Variations: CRUT
    • Charitable Remainder Uni Trust
    • Income paid back to Trustmaker is a percentage of the assets in the trust each year
    • Contribute $100,000, receive payment equal to 7% of the first-business-day-of-year value of the trust property
    • May be distributing income or principal
  • CRT Variations: NICRUT
    • Net Income Charitable Remainder UniTrust
    • Income paid back to Trustmaker is the
      • Actual income earned in the trust that year but not too exceed
      • a percentage of the assets in the trust.
    • More like the CRUT, but pays less if investments don’t earn enough income
    • Theoretically never distributes principal
  • CRT Variations: NIMCRUT
    • Net Income Make-up Charitable Remainder UniTrust
    • Actual income earned in the trust that year but not too exceed stated percentage
    • When actual income is less than stated percentage, the shortfall is accrued in a “make-up account” and may be distributed in later years when actual income exceeds percentage.
  • CRT Variations: NIMCRUT John & Mary, Deceased CRT Income Trust More flexibility on distributions vs. pushing growth inside the CRT John & Mary 501(c)(3) Charity Receives remainder
  • CRT Variations: FLIP-CRUT
    • “ Triggered” Charitable Remainder UniTrust
    • Like a CRUT but the payout is tied to some future event, which “triggers” the start of the payments
    • Start making distributions when certain property is sold (until then, might be nothing available to distribute)
  • Family benefit analysis Net Present Value: No CRT
    • $400,000 asset to sell, with zero basis NPV
    • 20% Capital gain tax: lose $80,000
    • Invest remaining $320,000 at 10% to produce $32,000/yr. income for life. Say 20 years. $272,434
    • At death the $320,000 goes to children $47,566
    • Net Present value of the income and remainder: $320,000
    • If estate tax reduces the principal at death by 50%, then just $160,000 would go to kids.
    • Net present value reduced by $23,783, to a net of $296,217
  • Family benefit analysis Net Present Value: With a CRT
    • $400,000 asset to sell, with zero basis NPV
    • No Capital gain tax. Invest entire $400,000 at 10% to produce $40,000/yr. income for life. Say 20 years. $340,543
    • Nothing goes to children at death, all to charity - 0 -
    • Initial income tax deduction is worth at least $13,200
    • Net Present value of the income and remainder: $353,743
    • With no estate tax, family is $ 33,743 better off, with estate tax, they are $ 57,526 better off. How much better off will they be investing a little income in an ILIT!?
  • CRT Income Taxation: WIFO
    • Distributions taxed to the income beneficiary
    • W orst I n F irst O ut
    • Four tiers: The most “tax expensive” income comes out first
      • 1. Ordinary Income & Short Term Cap Gains
      • 2. Long Term Capital Gain
      • 3. Other (ie. muni bonds interest)
      • 4. Return of Principal
  • Marketing Opportunities:
    • Assets under management
      • Sale of unmanaged assets (real estate, small business) without capital gain tax, move assets to diverse portfolio
      • Sale of low-income stock without capital gain tax, reinvest in modern portfolio
      • NIMCRUT: Variable annuity can provide the spigot
    • Life Insurance
      • Replacement value for what goes to charity at death
  • Another twist Charitable Lead Trust
    • ZERO-OUT your estate taxes
    • At death, from Living Trust, place part of estate in the CLT
    • Income for a few years goes to Charity
    • After those years, property to kids
    • Let charity “pick the apples” for a few years, then the kids get the trees
  • Another twist Charitable Lead Trust John & Mary Asset placed in Trust Charitable Lead Trust
  • Another twist Charitable Lead Trust John & Mary Income Charitable Lead Trust
  • Another twist Charitable Lead Trust John & Mary Charitable Lead Trust Children Receive Remaining assets
  • Basic Estate Tax Planning John’s Death Mary’s Death IRS Supermarket John’s RLT Mary’s Living Trust Children Family Trust plus Mary’s coupon, tax free; Estate Taxes on all over that Family Trust (coupon) Mary’s Living Trust Marital Trust
  • Basic Estate Tax Planning plus a Testamentary CLT Children Family Trust IRS Supermarket Mary’s RLT Marital Trust Mary’s RLT John’s RLT Charitable Lead Trust
  • Social Capital How to use our Social Capital
    • Government: 1/4 gets to end user
    • Private charity: 90% + to end user
    • Which makes more sense?
  • The Free Bridge
    • “ I live in Alexandria, Virginia. Near the Supreme Court chambers is a toll bridge across the Potomac. When in a rush, I pay the dollar toll and get home early. However, I usually drive outside the downtown section of the city and cross the Potomac on a free bridge.
    • “ This bridge was placed outside the downtown Washington, DC area to serve a useful social service, getting drivers to drive the extra mile and help alleviate congestion during the rush hour.
    • “ If I went over the toll bridge and through the barrier without paying the toll, I would be committing tax evasion. ...
  • The Free Bridge
    • “ If, however, I drive the extra mile and drive outside the city of Washington to the free bridge, I am using a legitimate, logical and suitable method of tax avoidance, and am performing a useful social service by doing so.
    • “ For my tax evasion, I should be punished. For my tax avoidance, I should be commended.
    • “ The tragedy of life today is that so few people know that the free bridge even exists.”
    • Justice Louis Brandeis
  • “ gains achieved unfairly”
    • “ Over the past 12 years, trickle-down policies have benefited the wealthy at the expense of the middle class and working poor. While a privileged few have prospered, millions of Americans who work hard and play by the rules have been left behind.
    • Since these gains were achieved unfairly , it is time for the rich to bear the greatest burden and to do right by the people who work hard and play by the rules.”
    • Former President Bill Clinton - February 1993
  • Who has paid enough?
    • “ So you’ve made $20 million in your lifetime. After you paid income taxes , your net worth is $13.2 million .
    • “ After your children pay estate taxes upon your death, it will be worth $6.33 million .
    • “ After your grandchildren pay estate taxes on the death of your children, it will be worth $3,401,400 .
    • “ Your estate will be worth only 17% of its original value after only two generations of taxation.”
    • Barry Kaye, Save a Fortune on Your Estate Taxes
  • Thanks for Attending Please Complete the Feedback Form
  • Financial Advisor Series
    • Charitable Trusts
    • Presented by
    • [Your Name]
    ©2002 National Network of Estate Planning attorneys. Unauthorized reproduction in any form is prohibited.