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(941) 387-0926 ~ It Is:
Introduction
Objectives
Your Questions
What You Will Need
Warning
Intro Summary
Related Information
*Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
*Tech Analysis & Citations
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
*TAX KILLERS
Title 1
Title 2
*COST KILLERS
Title 1
Title 2
*PREPARE
FOR ADVISER
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
*DO IT YOURSELF
Action
Checklist - What To Do
PRINT ALL THE REQUIRED DOCUMENTS
OBTAIN THE STANDARD WORKPAPER FORMS NEEDED
FINAL STEPS
*FINANCIAL ACCOUNTING
Financial
Statement Presentation
Notes
to Financial Statements
How to
Make Entries
What
Kind of Records to Keep
Bookkeeping
Methods - Cash, Accrual and Other
How the
Business Entity Affects the Recording
*COMPLIANCE
Title 1
Title 2
*ALERTS - DANGERS
Action Checklist
Alerts
& Dangers - Risks
Asset
Protection
Your
Defense
*TOOLS
Title 1
Title 2
*SAMPLES
Title 1
Title 2
*REQUIRED REPORTS
Title 1
*CHECKLIST FOR DEPLOYMENT
Title 1
*CHECKLIST FOR MONITORING
Title 1
*INDEX
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Charitable Remainder Trusts - Explained
Preface ~ Client Letter - What the CRT is about
Dear
Client:
A Charitable Remainder Trust (CRT), also called a Charitable Remainder Unitrust or CRUT, provides a fixed percentage (minimum 5%) of the annual value of trust assets be paid to the income beneficiary (usually the person making the gift). For example, a CRT (also a CRUT) with a value of $250,000 and an 8% distribution rate would pay $20,000 to the income beneficiary in that year. Another benefit of the Charitable Remainder Unitrust is that it will allow for additional contributions. The Unitrust will generally produce higher amounts of income but a smaller tax deduction.
A CRT is good for someone looking for a specific percentage return. This can be used to keep up with inflation if the trust value continues to grow over the years. The CRT should not invest in partnerships, publicly traded partnerships or any form of investment which will be classified as business income.
The trust instrument, if drafted properly, will provide for the percentage distribution, even in the case the current year earnings are not sufficient to pay for the distribution.
Furthermore, the cash distribution can be used to fund a wealth replacement trust - to create the same dollar of assets placed into the CRT at the original funding and pay to the heirs of the estate.
The CRT is not a retirement plan, however will provide for cash income during the retirement years, provide for a current year tax deduction and defer taxes until the income is drawn.
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Engagement Status Letter ~ WARNING!
You have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Thursday, February 22, 2007 11:44 AM
Summary
| Poor old Sue Started a set of books anew without reading these lines few and now Sue is in a Stew |
Related Information
-
A few closely related topics & pages From Bob Parrish CPA PC (left-click this to expand it):
Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
Your Answers
This Topic OBJECTIVE is: What it does Explanation of this topic and how it may affect you (for how it may affect you also refer to : Financial Accounting: Bookkeeping & Financials ~ Compliance - What is required for protection, defense, etc. ~ Alerts & Dangers)
The donor, of the assets placed in the trust, receives a current tax deduction for the donation and avoids any capital gains on the donated assets. The amount of tax deduction associated with the donation depends on the age of the last income recipient and the donor's elected income or percent lifetime payout from trust.
The main feature of the charitable remainder unitrust is a variable income. With this type of trust, you receive a lifetime or term income that is a percentage of your trust's assets revalued annually (by law, a minimum of 5 percent). Income payments increase or decrease with the changing value of the trust.
The unitrust provides a potential hedge against inflation as income payments may rise over time. In addition, the unitrust can be structured to defer income and maximize growth (for retirement planning, for example) or to handle specific types of assets
Start of Plain English Section
Why or How it works - Both Sides of the Equation and Examples:
Charitable Remainder Trusts
This letter is in response to our previous discussion concerning your
desire to establish a charitable remainder trust under your will. You indicated that your
spouse will be the life beneficiary and that Alma Mater College will be the recipient of
the remainder interest. I indicated to you that, to qualify for the estate tax charitable
deduction, a remainder trust must satisfy specific statutory criteria. I noted that you
have two choices: a charitable remainder annuity trust and a charitable remainder
unitrust. You asked me to identify the differences between these trusts. Although there is
another alternative, the pooled income fund, you rejected this alternative, since you want
your designated trustee, rather than Alma Mater, to have control over the funds during
your spouse's life.
Both trusts require that a specified percentage of the trust assets
must be paid to the income beneficiary at least annually. That percentage cannot be less
than 5% or more than 50%. The annuity trust requires this percentage to be applied to the
net fair market value of the trust assets at the time the trust is established. This
amount will not change regardless of any subsequent appreciation or depreciation in the
value of the trust assets.
The unitrust, however, requires the fixed percentage to be applied
annually against the fair market value of the trust assets. Accordingly, if the trust
assets have depreciated in value, the net cash amount to be distributed would be reduced.
However, if the assets have appreciated in value, the net cash amount to be distributed
will be increased. The anticipation is, of course, that assets will appreciate in value
and, accordingly, the annual payments will increase. The objective of the unitrust is to
enable the life tenant's payments to reflect increases for inflation, thereby enabling the
life tenant to retain purchasing power.
The value of the assets in a unitrust may increase merely because the
annual percentage distribution is less than the amount of income being received. For
example, if the annual payment is on a 5% basis, but the trust assets are in an investment
which yields 10%, the 5% differential will accumulate each year and, therefore, constitute
a larger base against which to apply the 5% distribution factor in subsequent years. On
the other hand, if the annual payment is based on 10% and the trust is invested in growth
stocks which are only yielding 3%, the additional 7% of the distribution must come from
principal and will reduce the base against which the 10% is applied in subsequent years.
However, this reduction of the principal by the amount of the distribution might be offset
by appreciation in the value of the underlying assets.
The value of the estate tax charitable deduction for either type of trust depends upon the amount of the annual percentage distribution. The distribution of a higher percentage to the life tenant will reduce the value of the remainder interest to be received by charity. Therefore, ordinarily this means that a higher amount must be included in the taxable estate. However, if the life interest goes to the surviving spouse, a marital deduction will be available for that gift. The trust property could become subject to estate tax if, at the death of the surviving spouse, that spouse has a large amount of unexpended trust funds included in his or her gross estate. If that spouse will also give his or her estate to charity, this matter will not be important, since a charitable contribution deduction will also be available for that transfer.
Start of Plain English Section
Comparisons
Contrasts
Start of Plain English Section
Cost v. Benefit Analysis ~ Its Value
Individuals
considering a charitable remainder or lead trust need to understand that
their financial goals can be met without interfering with their family's
security. Heirs can be protected and families united as they redirect
their social capital. Develop your potential for economic citizenship.
