1 FIFTH ANNUAL GREATER KANSAS CITY FORUM ON CHARITABLE TAX STRATEGIES CHARITABLE TAX PLANNING TECHNIQUES IN BUSINESS SUCCESSION PLANS

2 CHARITABLE REMAINDER TRUST Irrevocable trust benefiting non-charitable and charitable beneficiaries –Pays no income tax –Pays to non-charitable beneficiary for its term –Pays remainder to charitable beneficiary at end of term –Income, gift, estate and generation-skipping transfer tax charitable deduction

3 CHARITABLE REMAINDER UNITRUST –FLIP/NIMCRUT - combines annual payment of lesser fixed percentage CRUT assets, valued annually, or income; and annual payment of fixed percentage CRUT assets, valued annually. –Until FLIP, payment lesser of percentage or income –First year after FLIP, payment fixed percentage –Unitrust term 20 years or life of living individual

4 IRREVOCABLE LIFE INSURANCE TRUST PURPOSES –Exclude life insurance proceeds from taxable estate –Provide liquidity for estate taxes –Replace assets given to charity FUNDING –Normally Annual Exclusion gifts used to pay premiums

5 IRREVOCABLE LIFE INSURANCE TRUST (CONTINUED) ATTRIBUTES –Irrevocable –Not subject to generation skipping transfer tax if exemption applied to trust

6 CASE STUDY EXAMPLE NO. 1 Creative Use of Charitable Remainder Trust and Irrevocable Life Insurance Trust in Business Succession/Wealth Migration and Charitable Gift Planning

7 CASE STUDY EXAMPLE NO. 1 During the Lives of James Founder and Sally Founder FLIP/NIMCRUT 8% ABC Irrevocable Life Insurance Trust Fund With Income Tax Savings and Unitrust Distributions Income Tax Deduction Gift of ABC Stock Cash Stock

8 CASE STUDY EXAMPLE NO. 1 (CONTINUED) Upon Death of Survivor of James Founder and Sally Founder Charitable Remainder Unitrust Charity Irrevocable Life Insurance Trust Cash Allocated Among Trusts for Three Children and Their Descendants Termination of Trust and Distribution of Assets

9 FAMILY LIMITED PARTNERSHIP Planning tool to own and transfer family businesses, real estate interests and investment assets from one generation to succeeding generations in custom designed manner

10 CHARITABLE LEAD TRUST Irrevocable trust benefiting charitable and non-charitable beneficiaries –Pays to charitable beneficiary for its term –Pays remainder to children at end of term

11 CHARITABLE LEAD TRUST (CONTINUED) –Grantor receives gift or estate tax charitable deduction –Grantor receives income tax charitable deduction upon creation if “grantor” charitable lead trust –Grantor not receive income tax charitable deduction upon creation if “non-grantor” charitable lead trust

12 CHARITABLE LEAD TRUST (CONTINUED) Trust pays income tax during trust term if “non-grantor” charitable lead trust, with annual income tax charitable deduction Grantor pays income tax during trust term if “grantor” charitable lead trust, without annual income tax charitable deduction

13 CHARITABLE LEAD ANNUITY TRUST Charitable lead trust –Pays fixed percentage initial value trust assets to charitable beneficiary - “annuity amount”

14 PRIVATE FOUNDATION Non-profit corporation or irrevocable trust –Receives charitable contributions –Donor receives income tax charitable deduction Limited to 20% donor’s Adjusted Gross Income for gift of appreciated publicly traded stock attributed to value Limited to 20% donor’s Adjusted Gross Income for gift attributed to basis –Donor to receive full estate, gift and GST tax charitable deduction

15 INTENTIONALLY DEFECTIVE GRANTOR TRUST (“IDGT”) Irrevocable trust –Grantor (or in certain cases beneficiary) is owner of trust for income tax purposes –Grantor not owner of trust for gift, estate or GST tax purposes

16 CASE STUDY EXAMPLE NO. 3 Creative Use of Family Limited Partnership, Non-Grantor Charitable Lead Annuity Trust, Intentionally Defective Grantor Trust and Private Foundation in Business Succession/Wealth Migration and Charitable Gift Planning

17 CASE STUDY EXAMPLE NO. 3 Non-Grantor Charitable Lead Annuity Trust $1.875M James & Sally Founder Children Founder Family Investments, L.P. Assets: $3.517M Commercial Rental Real Estate $9M Separate Children’s GST Trusts (Grantor Trusts to the Children) Ten Year Term Note $1.875M Founder Family Foundation Remainder Interest Cash $3.125M Limited Partnership Interests (99.5%) Remainder Interest $506K $1.875M $187,500 a year $506K Founder Children $375K LLC GP (.5%) Cash $17,588 Membership Interest

18 CASE STUDY EXAMPLE NO. 4 Creative Use of Family Limited Partnership, Grantor Charitable Lead Annuity Trust, Intentionally Defective Grantor Trust, Private Foundation in Business Succession/Wealth Migration and Charitable Gift Planning

19 CASE STUDY EXAMPLE NO. 4 Grantor Charitable Lead Annuity Trust $2.1875M James & Sally Founder Children Founder Family Investments, L.P. Assets: $3.517M Commercial Rental Real Estate $6M Separate Children’s GST Trusts (Grantor Trusts to James and Sally Founder) Ten Year Term Note $2.1875M Founder Family Foundation Remainder Interest Cash $3.125M Limited Partnership Interests Remainder Interest $590.6K $2.1875M $218,750 a year $590.6K Founder Children $375K LLC GP (.5%) Cash $17,588 Membership Interest $1.597M Income Tax Deduction