CRT-PF Creative Posting

Client Version

Roddy Warren

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

Assumptions

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

Assumptions

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

New Assumptions

My Recommendation

My Recommendation

Private Foundation

Charitable Remainder Trust

ILIT

Donor can be trustee = manage assets

Create rules = irrevocable Customizable Keep right to change charity

How does a CRT work? …

CRTs

Graphic for a CRT

Your FamilyCharitable

Remainder Trust Ruth’s Foundation

Initial Transfer of

$10,000,000business

Leftover at Death

Payments during your

life

Payments can be:• Set Amount• Set Percentage

What is a private foundation?

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)

Private Foundations

Obed

Jesse

Board of Directors

Private Foundation Graphic

***Foundation must distribute at least 5% of assets annually

Why should I agree with your suggestions?

TAX BENEFITS!!

!

Tax Advantages of CRT

Your FamilyCharitable

Remainder TrustRuth’s Foundation

Initial Transfer of

$10,000,000business

Leftover at Death

Payments during your

life

Immediate Income Tax Deduction

No Capital Gains –OR- Estate Taxes

Tax Free Payments

Comparison

A Will A CRT

Revocable Irrevocable

No Income Tax DeductionImmediate Income Tax

Deduction

Estate and Capital Gains Tax

No Estate or Capital Gains Tax

$10,000,000 - 2,000,000 (20% capital gain tax)

8,000,000 left to invest

$8,000,000 - 1,000,000 exemption x 60% (estate tax at death)

4,200,000 LOST in ESTATE

TAXES!!!

Tax Consequences

$10,000,000 - 0

10,000,000 ***No estate

taxes***

PLUS = Taxdeduction of

about $4 million

Will versus CRT-PF

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

Perfect Option for your Goals

I suggest the use of an ILIT… or a

…Irrevocable Life Insurance Trust

Additional Goal and Concerns

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***

ILIT Only Use

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

ILIT cont.

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???

ILIT cont.

ILIT Graphic

Give money

ILIT

InsuranceCompany

PaysPremium

s

CRT

Income +

Deduction

Tax Free Death Benefit

Obed & Jesse

ILIT Graphic

Give money

ILIT

InsuranceCompany

PaysPremium

s

CRT

Income +

Deduction

Tax Free Death Benefit

Obed & Jesse30 day right to take cash

ILIT Graphic

Give money

ILIT

InsuranceCompany

PaysPremium

s

CRT

Income +

Deduction

Tax Free Death Benefit

Obed & Jesse30 day right to take cash

Don’t take cash

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

Recommendation

Final Comparison

CRT: $0 capital gains tax Tax deduction of about

$4 million Form private foundation Charity receives 5% a yearILIT: No estate or GST tax Use CRT inc./ded. to buy LI Annual gift tax

$10,000,000 - 2,000,000 in capital gain tax

$4,000,000 to Obed- 1,000,000 exempt X 60%-1,800,000

in estate tax

Then GST tax with Jesse

Sale

versus CRT with ILIT

CRT Private Foundation Why?• Tax benefits• Better than the alternative (a will)• Fits your goals

ILIT◦Crummey Powers

Conclusion