Revised crt pf (client)

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Revised crt pf (client)

  1. 1. Client VersionRoddy Warren
  2. 2.  Wish to convert $10 million business into income producing assets You wish to control assets during your life After your death, you wish to pass the control to your son Obed and require that he give 5% of principal to charity At Obed’s death, you wish to pass the control to your grandson Jesse and require the same 5% to be paid out to charity
  3. 3.  The after all three have passed away, you wish for a board appointed by your grandson in his will to be responsible for paying out the 5% to charity Also, you wish to control what charities are supported even after your death Protection from creditors Avoid all taxes as much as possible
  4. 4.  At your death, you wish to put $4 million of the business into a trust to pay Obed for his life and then after his death, the remainder goes to Jesse in 20 equal payments Wish to avoid estate and generation skipping taxes Anticipate it will take 2 years to sell business Wish to still go through with plans if pass away before she finds a buyer Wish the plan to be funded only by the business and any tax benefits that are created from it
  5. 5.  Donor can be trustee = manage assets Create rules = irrevocable Customizable Keep right to change charity How does a CRT work? …
  6. 6. Initial Transfer of $10,000,000 Leftover business at Death CharitableYour Family Ruth’s Foundation Remainder Trust Payments can be: Payments • Set Amount during your life • Set Percentage
  7. 7. What is a privatefoundation?
  8. 8.  Can last forever Your wishes live on after death Donor & descendants have control: • Of assets • And payouts (grants) to charities Foundation Board NOT a charity, just makes grants to charities (federal tax exempt)
  9. 9. ***Foundation Obed must distribute at least 5% of assets annually JesseBoard of Directors
  10. 10. Why should Iagree with yoursuggestions?
  11. 11. Immediate Income No Capital Gains –OR- Estate Taxes Tax Deduction Initial Transfer of Leftover $10,000,000 at Death business Charitable Ruth’s FoundationYour Family Remainder Trust Payments Tax Free Payments during your life
  12. 12. A Will A CRT Revocable Irrevocable Immediate Income Tax No Income Tax Deduction DeductionEstate and Capital Gains Tax No Estate or Capital Gains Tax
  13. 13. $10,000,000 $10,000,000 - 2,000,000 (20% capital gain tax) - 0 10,000,000 8,000,000 left to invest ***No estate$8,000,000 taxes***- 1,000,000 exemption x 60% (estate tax at death) PLUS = Tax deduction of 4,200,000 LOST in about $4 million ESTATE TAXES!!!
  14. 14. 1) Convert to income-generating assets2) Control assets during life3) You set which charity(s) gets support4) At death, your investments pass down to your heirs the way you desire5) Require certain % to be paid to charity6) Protection from creditors7) Avoid taxes
  15. 15. I suggest the use of an ILIT… or a…Irrevocable Life Insurance Trust
  16. 16.  Use the immediate tax deduction and the annual income you receive from the CRT to pay for life insurance The insurance policy is owned by the ILIT, not you (not in your estate) Obed and Jesse get a tax free inheritance…. ***NO estate or generation skipping taxes***
  17. 17.  You create the rules, ensure that premiums will be paid ILIT pays premiums to insurance co. Irrevocable If had CRT pay Obed/Jesse they would have to pay estate taxes …should use an ILIT
  18. 18.  Gifts to ILIT are taxable Annual exclusion ◦ Donors X Beneficiaries X 13,000 ◦ 1 X 2 X 13,000 = 26,000 excluded***In order to use exclusion we must offer Crummey Powers What???
  19. 19. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + GiveDeduction money ILIT Obed & Jesse
  20. 20. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + GiveDeduction money ILIT Obed & Jesse 30 day right to take cash
  21. 21. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + GiveDeduction money Don’t take cash ILIT Obed & Jesse 30 day right to take cash
  22. 22.  Create ILIT with… ◦ Life insurance on your life benefiting Obed for his life and then after his death, the rest goes to Jesse by a 20 year fixed annuity ◦ Average Insurance Cost for a permanent $4 million policy is $120,000 a year ***Use exclusion(26,000)=$94,000 Gift tax (55%) = $51,700
  23. 23. Sale versus CRT with ILIT$10,000,000 CRT:- 2,000,000  $0 capital gains taxin capital gain tax  Tax deduction of about $4 million$4,000,000 to Obed  Form private foundation- 1,000,000 exempt X 60%  Charity receives 5% a year-1,800,000 ILIT: in estate tax  No estate or GST tax  Use CRT inc./ded. to buy LIThen GST tax with Jesse  Annual gift tax
  24. 24.  CRT Private Foundation Why? • Tax benefits • Better than the alternative (a will) • Fits your goals ILIT ◦ Crummey Powers

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