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
5.
6.
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
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
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
