Charitable Reminder Trust - Who Should Be Trustee
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Description / Scope / Skill Level Pre-requisite Knowledge
No prerequisite knowledge is required to determine who the trustee should be.
Topic - Objective - Purpose Why This Is Important: Usefulness General Benefits 7 Objectives:
The proper selection of a trustee is very crucial to the success in meeting your goals.
Time Estimate: Must be selected before funding and before the final draft.
Materials - Equipment-Tools - Library Resources: None
Who This Applies to:
The donor of a charitable trustWhen to Perform:
Before the trust is completed and annually.Special Circumstances: The wrong trustee can wreak financial havoc on the trust and the wrong selection might void the trust and the tax benefits.
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Learning
Objectives (What You Asked) From Bob Parrish CPA PCYOUR QUESTION(S)
Who can be trustee of a charitable trust?
Objective one
What You Will Need From
Bob Parrish CPA PC
Plain English Analysis What it does, Why it works - The Answer, Alternatives From
Bob Parrish CPA PC|
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| Cost v. Benefits Analysis |
YOUR ANSWERS
Trustees of the Charitable Remainder Trust
Who should be the trustee of your charitable remainder trust?
The Charitable Remainder Trust offers both income tax reduction and charitable planning strategies. However, you will want to consider the choice of a trustee in the process. There are some procedural rules and your personal rules to consider. The costs v. benefits of the Charitable Remainder Trust are not considered herein. If you want to learn about the impact on your tax expenses and your net worth you should read "Charitable Remainder Trust Benefits" and "Income Taxation - CRT".
You might be interested in a few related topics:
"CRT Client Letter", "CRT Distributions In Excess of Income", "CRT Sample Trust Instrument from Regulation 90-30", "CRT Pass Through Items (from investments)", "CRT Wealth Replacement Clause"
A very brief statement will assist with the understanding of the benefits available. For example if you have public traded securities which have a basis of $100,000 and a current market value of $1,000,000 there is a capital gain of $900,000. To fund your favorite charity, instead of selling them or instead of gifting them outright to the charity, then use them to fund a Charitable Trust. You receive a tax deduction of the PRESENT VALUE of the securities. Depending upon your age the deduction might be $100,000 (it can be more, or it can be less, depending upon your age, other circumstances and the provisions of the trust). Instead of paying $180,000 in taxes you receive a tax deduction of $100,000. (See Alternatives) FURTHERMORE you will be allowed to draw the income from the investments fro the remainder of your life!
Some savvy taxpayers have chosen to fund this type of trust to use for producing
income during retirement years. Please consider using some
mathematics and how much you will want to use for retirement income. The
affect is that you do not pay tax on money that is not distributable from the
Trust. Plan on the amount you need, the expected rate of return, the
expected corpus balance of the trust and any personal income tax on the
distributable income.
Your Question was - Who should the trustee be? Before attempting to answer that question, let's consider the nature of these arrangements.
Most charitable remainder trusts promise income payments to the donor/beneficiaries over their remaining lifetime or joint lifetimes in the case of married couples. This can easily involve a period of 30 to 40 years.
The trustee must typically negotiate the sale of real estate, manage the portfolio allocation and in general guide the investment capital based upon the trust instrument and the skills and integrity of the trustee. The trustee must have the administrative capability to complete periodic accountings, file all required fiduciary tax returns and provide the donor\trustor with the numbers needed annually for his or her tax reporting. Sound like a big job? I believe it is. That is why I would recommend you consider the experience and financial strength of your prospective trustee as well as their administrative capability. You are making a very critical business decision regarding your money and the remainder of your life.
In most cases, your choice comes down to either an institutional trustee such as a bank or independent trust company or the charity itself. The donor cannot be the trustee.
With an institutional trustee, financial strength is usually not a concern but experience in the specialized field of charitable trusts is another matter. You may want to question the trust officer about the number of charitable trusts they manage or what charities they work with. Fees will also be a factor in your selection of an institutional trustee. Try to get a list of charges; custodial fees, investment transaction and management fees, any accounting fees, etc.
Warning! I have observed many bank trust departments and other trustees
overcharge for all aspects of the trust administration - sometimes charging 10
times what your CPA charges for tax preparation and accounting. In
addition to overcharging for services, the banks have been well known for
over-valuing assets so that the trustee fees are based upon the over valuation
and thereby overcharged. In addition I have observed banks and
broker-dealers, accepting trusts only after over viewing by their legal staff - GUESS
WHAT! The donor later sadly discovered the trust instruments had been
drafted to permit only that bank or broker-dealer to be the trustee! I
have observed "independent" legal counsel approve those draft
changes without calling them to the attention of the client! Talk to your
CPA before signing anything.
Utilizing the charity as a trustee may be your best bet if you deal with a strong, experienced one. Some of our local charities, like Memorial Medical Center Foundation in Long Beach, have a large, planned giving department staffed with estate planning and accounting professionals who do nothing else but this type of work. Some of these organizations will trustee these plans without fees if their charity is the primary remainderman in the charitable arrangement. Further, the larger, more sophisticated foundations, like Memorial, utilize a number of professional money managers and with millions of dollars under their management are able to minimize investment transaction and management fees.
What if the object of your charitable interest is a small charity without significant assets or experience with charitable remainder trusts?
In that case, I suggest you either select an institutional trustee who does substantial work in the charitable arena or consider approaching a stronger charity to trustee your plan on the premise that you name more than one charitable remainderman for the trust, perhaps splitting the remainder between the two.
One final thought on the subject of trustee. While a charitable remainder trust is an irrevocable transfer, you may reserve the right to change the trustee at any time without cause in the charitable trust document. So, if you are unhappy with the investment performance or administrative follow through of your trustee, you may replace them.
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Technical Analysis & Citations What It does, Why
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Commentary
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From Bob Parrish CPA PC
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.
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