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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 These charities and foundations withdrawn in the early years receive the corpus of the Trust after the death of you and in order to meet the Trust’s your spouse.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. Call toll-free (800) 423-4891 www.MyRetirementStrategy.com 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). Call toll-free (800) 423-4891 www.MyRetirementStrategy.com 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 Call toll-free (800) 423-4891 www.MyRetirementStrategy.com 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. Phone (800) 423-4891 Fax (858) 642-0171 www.MyRetirementStrategy.com Insurance offered through RSG Partners Financial & Insurance Services, Inc. Securities offered through Brecek & Young Advisors, Inc., a registered Investment Advisor, Broker/Dealer, Member FINRA/SIPC Call toll-free (800) 423-4891 www.MyRetirementStrategy.com
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