Revised crt pf (client)
- 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. 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. 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
- 7. Donor can be trustee = manage assets Create rules = irrevocable Customizable Keep right to change charity How does a CRT work? …
- 8. Initial Transfer of $10,000,000 Leftover business at Death Charitable Your Family Ruth’s Foundation Remainder Trust Payments can be: Payments • Set Amount during your life • Set Percentage
- 9. What is a private foundation?
- 10. 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)
- 11. ***Foundation Obed must distribute at least 5% of assets annually Jesse Board of Directors
- 12. Why should I agree with your suggestions?
- 14. Immediate Income No Capital Gains –OR- Estate Taxes Tax Deduction Initial Transfer of Leftover $10,000,000 at Death business Charitable Ruth’s Foundation Your Family Remainder Trust Payments Tax Free Payments during your life
- 15. A Will A CRT Revocable Irrevocable Immediate Income Tax No Income Tax Deduction Deduction Estate and Capital Gains Tax No Estate or Capital Gains Tax
- 16. $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!!!
- 17. 1) Convert to income-generating assets 2) Control assets during life 3) You set which charity(s) gets support 4) At death, your investments pass down to your heirs the way you desire 5) Require certain % to be paid to charity 6) Protection from creditors 7) Avoid taxes
- 18. I suggest the use of an ILIT… or a …Irrevocable Life Insurance Trust
- 19. 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***
- 20. 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
- 21. 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???
- 22. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + Give Deduction money ILIT Obed & Jesse
- 23. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + Give Deduction money ILIT Obed & Jesse 30 day right to take cash
- 24. CRT Insurance Company Pays Tax Free Premiums Death Income Benefit + Give Deduction money Don’t take cash ILIT Obed & Jesse 30 day right to take cash
- 25. 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
- 26. Sale versus CRT with ILIT $10,000,000 CRT: - 2,000,000 $0 capital gains tax in 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 LI Then GST tax with Jesse Annual gift tax
- 27. CRT Private Foundation Why? • Tax benefits • Better than the alternative (a will) • Fits your goals ILIT ◦ Crummey Powers