charitable remainder trust presentation

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Financial Advisor Series Charitable Trusts Presented by Brett Sanner Raymond James Financial Suzanne M. Graves Law Offices of Suzanne M. Graves, Inc.

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Benefits of a Charitable Remainder Trust

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Page 1: Charitable Remainder Trust Presentation

Financial Advisor Series

Charitable Trusts

Presented by

Brett SannerRaymond James Financial

Suzanne M. GravesLaw Offices of Suzanne M. Graves, Inc.

Page 2: Charitable Remainder Trust Presentation

Estate Planning Overview

Most Estate Plans Just Don’t Work!

Page 3: Charitable Remainder Trust Presentation

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

Page 4: Charitable Remainder Trust Presentation

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.

Page 5: Charitable Remainder Trust Presentation

Estate Planning Overview

The Estate Planning Pyramid Focuses on Client Goals “Solutions” make planning easier Exposes Traditional planning as

“upside down”

Page 6: Charitable Remainder Trust Presentation

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

Page 7: Charitable Remainder Trust Presentation

Estate Planning OverviewApproach

Traditional

Reactive

Truth

Proactive

Page 8: Charitable Remainder Trust Presentation

Estate Planning OverviewControl

Traditional

By Others

Truth

Rests With

Client

Page 9: Charitable Remainder Trust Presentation

Estate Planning OverviewClient Education

Traditional

Minimal,

Much After

Death

Truth

Increased and

as Soon as

Possible

Page 10: Charitable Remainder Trust Presentation

Estate Planning OverviewClient Understanding / Comfort

Traditional

Minimal / Low

Truth

Increased

Page 11: Charitable Remainder Trust Presentation

Estate Planning OverviewTeam Approach

Traditional

Infrequent Use

Truth

Requirement

Page 12: Charitable Remainder Trust Presentation

Estate Planning OverviewFunding

Traditional

After Death

(With Increased

Expense)

Truth

Current and

Continuous

Page 13: Charitable Remainder Trust Presentation

Estate Planning OverviewPersonal Instructions

Traditional

Minimal to

None

Truth

Substantial

(& Encouraged)

Page 14: Charitable Remainder Trust Presentation

Estate Planning OverviewUpdating

Traditional

Infrequent or

Non-Existent

Truth

Continuous

Page 15: Charitable Remainder Trust Presentation

Estate Planning OverviewFees

Traditional

Little Known,

Primarily after

Death

Truth

Fully Disclosed,

Higher Initially,

Lower Overall

Page 16: Charitable Remainder Trust Presentation

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

Page 17: Charitable Remainder Trust Presentation

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

Page 18: Charitable Remainder Trust Presentation

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%

Page 19: Charitable Remainder Trust Presentation

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

Page 20: Charitable Remainder Trust Presentation

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

Page 21: Charitable Remainder Trust Presentation

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

RemainderWealth is like an orchard you’ve built up over a

lifetime. Taxes take the trees. When the trees are gone, no more apples!

Page 22: Charitable Remainder Trust Presentation

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

Page 23: Charitable Remainder Trust Presentation

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!

Page 24: Charitable Remainder Trust Presentation

Charitable Remainder Trust

John &

Mary

Page 25: Charitable Remainder Trust Presentation

Charitable Remainder Trust

John &

Mary

Asset placed in Trust

CRTIncomeTrust

Page 26: Charitable Remainder Trust Presentation

Charitable Remainder Trust

John &

Mary

Income for life

CRTIncomeTrust

Page 27: Charitable Remainder Trust Presentation

Charitable Remainder Trust

John &

Mary,Deceased

501(c)(3) Charity Receives remainder

CRTIncomeTrust

Page 28: Charitable Remainder Trust Presentation

Charitable Remainder Trust

John &

Mary,Deceased

501(c)(3) Charity Receives remainder

CRTIncomeTrust

The transaction is a gift to the

end Beneficiary, subject to the

retained right to income for a number of

years.

Page 29: Charitable Remainder Trust Presentation

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

Page 30: Charitable Remainder Trust Presentation

Charitable Remainder Trust

Bank Stock worth $3,000,000Basis $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 $135,000Bonus! Up to $105,000 for 6 years is income tax

free!

Page 31: Charitable Remainder Trust Presentation

Charitable Remainder Trust

Bank Stock worth $3,000,000Basis $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

Page 32: Charitable Remainder Trust Presentation

Charitable Remainder Trust

Bank Stock worth $3,000,000Also avoid Estate Tax

$3M >> $2,420,000 after Cap Gain tax $580,000 Death: estate taxes (if have other assets) $1,121,700To IRS from original $3M: $1,701,700To 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 $3,000,000To Heirs at Death $3,000,000TO IRS: $0

Page 33: Charitable Remainder Trust Presentation

Charitable Remainder Trust PLUS

John &

Mary

Income for life

Asset placed in Trust

Charitable Remainder

Trust

Page 34: Charitable Remainder Trust Presentation

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

Page 35: Charitable Remainder Trust Presentation

Family Receives $3,000,000

Charity Receives $3,000,000

No Death Taxes!!

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

Page 36: Charitable Remainder Trust Presentation

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

Page 37: Charitable Remainder Trust Presentation

CRT Variations: CRUT Charitable Remainder UniTrust 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

Page 38: Charitable Remainder Trust Presentation

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

Page 39: Charitable Remainder Trust Presentation

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.

Page 40: Charitable Remainder Trust Presentation

CRT Variations: NIMCRUT

John &

Mary,Deceased

501(c)(3) Charity Receives remainder

CRTIncomeTrust

More flexibility on distributions vs. pushing growth inside the CRT

John &

Mary

Page 41: Charitable Remainder Trust Presentation

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)

Page 42: Charitable Remainder Trust Presentation

Family benefit analysisNet 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

Page 43: Charitable Remainder Trust Presentation

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!?

Page 44: Charitable Remainder Trust Presentation

CRT Income Taxation: WIFO Distributions taxed to the income beneficiary

Worst In First Out Four tiers: The most “tax expensive” income

comes out first1. Ordinary Income & Short Term Cap Gains

2. Long Term Capital Gain

3. Other (ie. muni bonds interest)

4. Return of Principal

Page 45: Charitable Remainder Trust Presentation

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

Page 46: Charitable Remainder Trust Presentation

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

Page 47: Charitable Remainder Trust Presentation

Another twist Charitable Lead Trust

John &

Mary

Asset placed in Trust

Charitable LeadTrust

Page 48: Charitable Remainder Trust Presentation

Another twist Charitable Lead Trust

John &

Mary

Income

Charitable LeadTrust

Page 49: Charitable Remainder Trust Presentation

Another twist Charitable Lead Trust

John &

Mary

Children Receive Remaining assets

Charitable LeadTrust

Page 50: Charitable Remainder Trust Presentation

Basic Estate Tax Planning

John’s Death

Mary’s Death

IRS Supermarket

Children Family Trust plus Mary’s coupon, tax free;

Estate Taxes on all over that

Family Trust

(coupon)

Mary’s Living Trust

Marital Trust

John’s RLTMary’s

Living Trust

Page 51: Charitable Remainder Trust Presentation

Children

Charitable Lead Trust

Basic Estate Tax Planning plus a

Testamentary CLT

Family Trust

IRS Supermarket

Mary’s RLTMarital Trust

Mary’s RLTJohn’s RLT

Page 52: Charitable Remainder Trust Presentation

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?

Page 53: Charitable Remainder Trust Presentation

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. ...

Page 54: Charitable Remainder Trust Presentation

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

Page 55: Charitable Remainder Trust Presentation

“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

Page 56: Charitable Remainder Trust Presentation

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

Page 57: Charitable Remainder Trust Presentation

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Page 58: Charitable Remainder Trust Presentation

Financial Advisor Series

Charitable Trusts

Presented by

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