Dusting Off the Old CRT The Ideal Asset for A CRT Yes if You bought it for 40000 in 1960s and its worth 4 million in the early 1990s Have you done a lot of CRTs in the past ten years ID: 212309
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Reynolds T. Cafferata
Dusting Off the Old CRTSlide2
The Ideal Asset for A CRT?Slide3
Yes, if
You bought it for $40,000 in 1960’s and its worth $4 million in the early 1990’s.Slide4
Have you done a lot of CRTs in the past ten years?Slide5
Low Tax RatesFew appreciated assets
No because …Slide6
That’s all changing …Slide7
Federal Ordinary Income 39.6%Federal Capital Gains 20%
Medicare Surcharge 3.8%
California 13.3%
(9.3% base, 1% millionaire tax, 3% Prop. 30)
Rates Are UpSlide8
2009 Dow 6627, 2013 Dow 15300Residential House up 10%+ in some Markets from 2012 to 2013
Assets Are UpSlide9
Robert F. Sharpe & Co Research finds peak age for creating a CRT is 68
Next year the first baby boomer turns 68
Demographics Will Favor CRTsSlide10
Main benefit of a CRT is not the deduction
Tax Exempt Status of CRT allows pre-tax reinvestment of sale proceeds
The greater the appreciation and the greater the tax rate, the greater the benefit of the
CRT
Someone looking to turn an appreciated asset into an income stream will benefit from a CRT
Ideal Circumstances for CRTsSlide11
Sale vs. CRTSlide12
Unitrust or Annuity TrustLives in Being or Term of years up to 20
Assets remaining pass to charity
CRT Review--StructureSlide13
10% Remainder Value
Payout
Term
AFR
5% to 50% Payout Rate
Annuity Trust must pass Exhaustion Test
CRT Basics--Minimum RequirementsSlide14
Fixed Dollar AmountNo Additional Contributions Allowed
No Benefit to Beneficiary From Growth of CRT
CRT Basics—Annuity TrustSlide15
Fixed PercentageTrust Revalued Annually
Flavors
Standard
Net Income
(Make-up)
Flip (Make Up)
Beneficiary benefits from growth in value
CRT Basics--UnitrustSlide16
Payments to Beneficiary Taxed under Four Tier Rule
UBTI Taxed at 100%
Cannot Be a Grantor Trust
Debt can cause UBTI or Grantor Trust Status
Cannot Hold S-Corporation Stock
CRT Basics—Other RulesSlide17
Taxes reduce proceeds of sale of highly appreciated asset by 30% to 40%
CRT can reinvest 100% of
proceeds of sale of highly appreciated
asset
Beneficiary receives unitrust amount from
100% of proceeds of sale of highly appreciated asset
Power of the CRTSlide18
Long-term real estate, particularly after 1031 exchanges
Founders stock
Long-term stock
Tangible property like art
Types of Appreciated AssetsSlide19
Unitrusts that pay net income are limited to cash flow
LLCs, Partnerships and annuities can control cash flow
Flip trusts can have triggers based on a variety of events
Managing Income FlowSlide20
Managing CRT IncomeSlide21
Sale vs. CRT PVSlide22
Fixed After Tax Payment