advanced crt design reynolds t. cafferata, rodriguez, horii, choi & cafferata, llp
TRANSCRIPT
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Advanced CRT DesignReynolds T. Cafferata, Rodriguez, Horii, Choi & Cafferata, LLP
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CRTs are back
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Easy Assets
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Difficult situations
S Corporation
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Flavors of CRTs
• Annuity• Unitrust• Net Income Unitrust• Net Income Make Up• Combination of Methods (“Flip Trust”)
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What if the donor wants?
• Distributions some years and not others?
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Spigot CRT
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Unitrust Amount > Net Income
What if Net Income is 0?
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What’s Net Income?
• Trust Accounting Income• Cash Accounting• Interest, Dividends, Rents & Royalties• Not Gain from the sale of assets• Entities Create Income with distributions• Not the same as taxable income
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Invest to Control Income
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Use an entity to control income
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Choices of Entities
• Variable Annuity• Partnership• Single Member LLC
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Distributions from Entities
• Cash is Income unless:• Liquidation• Redemption• Exceeds 20% of Value of Entity
• Property and other distributions are Principal• California Look-Through Rule
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Challenges
• Self-dealing• Constructive Receipt• Creation of Income When Distribution is Desired
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S Corporation Stock
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S Corporation Basics
• Flow Through Taxation• Shareholder Limits• U.S. Citizens• 501(c)(3) Organizations• Trusts for the above
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S Corps and CRTs
• Do not mix• Ineligible Shareholder• UBTI for 501(c)(3) Organizations
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S Corp Can Fund a CRT
• S Corp Is Beneficiary of CRT• 20 Year Term Maximum
S Corp
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Challenges
• S Corp Must be Beneficiary• Deemed Liquidation
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Encumbered Property
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Potential Issues
• Bargain Sale • UBTI• Grantor Trust Disqualification
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Pay It Off or Transfer It
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Aged Debt Avoids UBTI
• Not Acquisition Debt If:• Donor Owned Property 5 Years• Debt on Property for 5 Years• Charity Does Not Assume Debt
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Grantor Trust is Not a CRT
• CRT Cannot Be a Grantor Trust• Income owned by donor• Applies if CRT can pay donor’s debts• Recourse Debt is Donor’s Debt• Non-Recourse Debt may be OK
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Solutions to Recourse Debt
• Pay it off or Transfer It• Get Lender to Waive Recourse• Keep out of Trust and Indemnify Trust
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CRT Money Tree