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					                                                                       Generally, a Charitable
    Charitable Remainder                                               Remainder Unitrust makes
                                                                       distributions annually,
    Unitrust:                                                          although it is possible to
                                                                       draft the trust so that you
    Avoid Capital Gains While Selling Appreciated                      retain the option of deferring
    Assets                                                             income by using what is
                                                                       called a “makeup provision”
    What is A Charitable Remainder Unitrust?
                                                                       clause. Even though there is
    The Charitable Remainder Unitrust or (CRUT) is simply an
                                                                       no maximum payout
    irrevocable trust, which has two sets of beneficiaries.
                                                                       percentage chosen, a higher
                                                                       payout percentage may
    The First Set of Beneficiaries:
                                                                       mean a lower charitable
    You and your spouse. Usually both of you are the Trust’s           income tax deduction.
    income beneficiaries for your lifetimes; this gives you and        Moreover, a high payout
    your spouse the right to receive a specified percentage of the     percentage means reduced
    Trust’s assets annually.                                           income in later years, since
    The Second Set of Beneficiaries: Qualified charities, including    principal may have to be
    Private Family Foundations. These charities and foundations        withdrawn in the early years
    receive the corpus of the Trust after the death of you and         in order to meet the Trust’s
    your spouse. These beneficiaries are not permanent. Both           payout obligation. (In this
    you and your spouse may change the charitable beneficiaries        economic environment, we
    at any time. When creating the Trust, you and your spouse          recommend that the payout
    may also serve as trustees, as long as difficult-to-value          percentage should never
    assets are not transferred to the Trust. In this respect, you      exceed ten percent of the
    can get the benefits of having the trust hold the assets, and      net fair market value of the
    still maintain investment control over trust assets.               assets. Additional assets
                                                                       can be placed in the CRUT if
    What Comes In And What Goes Out?                                   the principle is being
    Generally, unencumbered, highly appreciated assets are             depleted by the income
    transferred to the Trust. This enables you and your spouse,        stream drawn.)
    as Trustees, to sell such assets without paying capital gains
    taxes. The full value of the assets transferred to the Trust can
    immediately go to work for you and your spouse, as you are
    the lifetime income beneficiaries of the Trust. The income that
    comes out of the Trust to you and your spouse depends upon
    the payout percentage that you choose, and how income is
    generated from the assets within the trust.




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    CRUT’s Function As A Tax-Favored Retirement Plan                  Family Financial Benefits First
    A Charitable Remainder Unitrust can also be designed to           and Foremost Many people
    function as a tax-favored retirement plan. While you are in       think that the only way a
    your peak earning years, you can make contributions to the        Charitable Remainder Unitrust
    Trust. These contributions can be invested in zero-coupon         makes sense is if you have a
    bonds, non-dividend paying growth stocks, or professionally       genuine philanthropic motive,
    managed variable annuities. The Trust should be designed to       and you wish that to take
    require that distributions not exceed income, and that future     precedence over your
    distributions make up for the shortfall in income from earlier    personal financial desires. The
    years (Since, in the early years, the trust produced no current   reality is, however, that the
    income to distribute). Later, when you retire, the Trust’s        vast majority of Charitable
    assets are invested in high-yielding, income-producing            Remainder Unitrusts are
    assets. The Trust begins to make payouts to you, including        established because it makes
    makeup amounts for the shortfall in income not earlier            economic sense for you and
    received. There is one other key consideration to note:           your family. Donative
    Contributions to a Charitable Remainder Unitrust are not          charitable intent is most often
    subject to the limits that other qualified retirement plans are   secondary.
    regarding the amount contributed, accumulated or ultimately       An Example Using the
    distributed.                                                      Charitable Remainder Unitrust
    Estate And Income Taxes Are Reduced                               John and Mary live in
                                                                      California, are in their early
    Each dollar that you can remove from your estate and              70’s, and have an estate,
    contribute to the trust could ultimately save as much as $.49     worth approximately $4
    under current estate tax rates. Moreover, you can make such       million. Many years ago, John
    contributions without affecting the $11,000 gift tax annual       and Mary purchased an
    exclusion or the current $1,000,000 unified credit exemption.     apartment building, which is
    Your charitable income tax deduction is based on several          now fully paid for and has
    factors. This deduction is limited to the present value of the    appreciated substantially to a
    remainder interest to the charity and is also determined by       value of $1,000,000. Although
    the kind of property contributed to the CRUT. Your deduction      the apartment building still
    also depends on the type of qualified charity named as            produces a positive cash flow
    beneficiary.                                                      of $30,000 per year, John and
    Whether the charity is “public” or a private foundation of your   Mary are tired of managing the
    own, whether the property contributed to the Trust is cash or     property. In addition, they are
    an appreciated asset, and whether your deduction is tied to       also disappointed that they
    your basis in the gift or its fair market value, will determine   can no longer shelter part of
    your income tax deduction. Your deduction will usually fall in    their cash flow for income tax
    the range of 20% to 50% against your adjusted gross income.       purposes (since they have
    Note: any charitable income tax deduction not used in the         taken all the depreciation
    year of contribution may be carried forward for the next five     write-offs that they are entitled
    succeeding years.                                                 to).

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     John and Mary would like to sell the apartment building now,      operates as an asset
    but have been advised by their tax advisor that approximately      protection trust since it is
    35% of the sale of the proceeds must go towards the                designed to shield assets
    payment of federal and state capital gains taxes. Also, they       from creditors, judgments,
    have been advised that even though their Living Trust will         malpractice and divorce.
    allow them to shelter $2 million from federal estate taxes
                                                                       John and Mary named their
    under current law, they will have to pay approximately 45% in      children as co-trustees of
    estate taxes for their estate in excess of the $2 million. This    The Wealth Trust and the
    means that their $1,000,000 apartment building, if sold, would     children, as trustees,
    only be worth around $350,000 to their children since more         purchased $1,000,000 worth
    than 65% of the property’s value would be lost in some form        of second-to-die life
    of taxes.                                                          insurance on their parents
    A Charitable Remainder Unitrust was a perfect solution for         for a premium of $30,000 per
    John and Mary. Together, John and Mary formed a 10%                year over a ten-year period,
    payout Charitable Remainder Unitrust naming themselves as          given current interest rate
    co-trustees. They also named an independent co-trustee for         assumptions. John and
    valuation purposes only, since real estate is deemed to be a       Mary, who had already
    hard-to-value asset by the Internal Revenue Service. After         tripled their current income
    giving the property to the trust and having value established,     that they received from the
    John and Mary, as trustees, sold the apartment building for        Trust as compared with that
    cash and paid no capital gains taxes. Thereafter, John and         received from the apartment
    Mary invested the full $1,000,000 in a balanced mutual fund,       building, were more than
    which produced 10% per annum.                                      happy to gift $30,000 per
                                                                       year to the Trust for payment
    Although John and Mary had other sources of retirement
                                                                       for the life insurance policy.
    income, and did not need the Charitable Remainder Unitrust
                                                                       Now, at John and Mary’s
    income, they were delighted to receive more than $100,000
                                                                       death, $1,000,000 would
    per year for the rest of their lifetimes, given current interest
                                                                       pass to the children, both
    rate assumptions. Also, they were able to shelter a significant
                                                                       income tax and estate tax-
    portion of the income over the next six years. This shelter
                                                                       free. Each child would be a
    resulted since they also received approximately $300,000
                                                                       trustee of his or her own
    worth of charitable income tax deduction, thanks to Uncle
                                                                       separate Trust containing
    Sam. John and Mary were very pleased with the lifetime
                                                                       one-half of the $1,000,000 or
    benefits of the Charitable Remainder Unitrust, however, they
                                                                       $500,000 each. By
    had also planned to replace the value of the apartment
                                                                       combining the Charitable
    building since they knew that the charity, not their children,
                                                                       Remainder Trust with the
    would end up with all of the assets in the Trust upon the
                                                                       Wealth Trust, John and Mary
    survivor’s death.
                                                                       were able to meet their
    To remedy this situation, John and Mary established The            personal goals including:
    Wealth Trust, a generation-skipping dynasty trust that avoids
    estate taxes for up to three generations. The Wealth Trust
    also
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         Increased retirement income;                                          The Key? A Well Drafted
         Reduced current income tax liability;                                 Charitable Remainder
         Eliminated estate taxes on the sale of the               apartment    Unitrust
          building;                                                             One of the few tax-
         Relieved them of the hassle of managing the              apartment    advantaged strategies still
          building;                                                             available under the Internal
         Ensured that John and Mary’s children would              receive at   Revenue Code (IRC) 664 is
          least as much as they would have if the                  apartment    a Charitable Remainder
          building had been retained.                                           Unitrust. The CRUT is not a
    Lets Review The Characteristics Of The CRUT                                 new strategy. It has been in
                                                                                the law, in its current form
    1. Avoids all capital gains taxes on the sale of appreciated                since 1969.
       assets contributed to the Trust.
    2. Potentially increases current income for you and your                    The successful execution of
       spouse while sheltering a portion of your income through                 any CRUT is available
       the use of the charitable income tax deduction.                          through Retirement
    3. Reduces you estate taxes by making contributions to the                  Strategies Group’s affiliated
       trust.                                                                   attorneys and our own
    4. Keeps the wealth that cannot be retained by you and your                 wealth transfer-planning
       family. Transfers it to you favorite charities or your own               department. These
       private family foundation, instead of giving it to the                   strategically located,
       government bureaucracy in the form of taxes.                             competent specialists are
    5. When used in conjunction with the Wealth Trust, the                      available to help you and
       CRUT can significantly increase the amount of overall                    your family achieve your
       wealth, which will pass to your children,                                family planning goals,
       grandchildren and perhaps even                                           wherever you may reside.
       great-grandchildren.                                                     To learn more, contact
                                                                                Retirement Strategies Group
                                                                                toll-free at (800) 423-4891.
                                                                                Retirement Strategies Group
                                                                                is one of America’s leaders
                                                                                in retirement planning and
                                                                                endorsed by many
                                                                                prestigious national
                                                                                associations and affinity
        4225 Executive Square, Suite 1060, La Jolla, California 92037           groups.
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