Advanced CRT Design Reynolds T. Cafferata, Rodriguez, Horii, Choi & Cafferata, LLP.

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Presentation transcript:

Advanced CRT Design Reynolds T. Cafferata, Rodriguez, Horii, Choi & Cafferata, LLP

CRTs are back

Easy Assets

Difficult situations S Corporation

Flavors of CRTs Annuity Unitrust Net Income Unitrust Net Income Make Up Combination of Methods (“Flip Trust”)

What if the donor wants? Distributions some years and not others?

Spigot CRT

Unitrust Amount > Net Income What if Net Income is 0?

What’s Net Income? Trust Accounting Income Cash Accounting Interest, Dividends, Rents & Royalties Not Gain from the sale of assets Entities Create Income with distributions Not the same as taxable income

Invest to Control Income

Use an entity to control income

Choices of Entities Variable Annuity Partnership Single Member LLC

Distributions from Entities Cash is Income unless: Liquidation Redemption Exceeds 20% of Value of Entity Property and other distributions are Principal California Look-Through Rule

Challenges Self-dealing Constructive Receipt Creation of Income When Distribution is Desired

S Corporation Stock

S Corporation Basics Flow Through Taxation Shareholder Limits U.S. Citizens 501(c)(3) Organizations Trusts for the above

S Corps and CRTs Do not mix Ineligible Shareholder UBTI for 501(c)(3) Organizations

S Corp Can Fund a CRT S Corp Is Beneficiary of CRT 20 Year Term Maximum S Corp

Challenges S Corp Must be Beneficiary Deemed Liquidation

Encumbered Property

Potential Issues Bargain Sale UBTI Grantor Trust Disqualification

Pay It Off or Transfer It

Aged Debt Avoids UBTI Not Acquisition Debt If: Donor Owned Property 5 Years Debt on Property for 5 Years Charity Does Not Assume Debt

Grantor Trust is Not a CRT CRT Cannot Be a Grantor Trust Income owned by donor Applies if CRT can pay donor’s debts Recourse Debt is Donor’s Debt Non-Recourse Debt may be OK

Solutions to Recourse Debt Pay it off or Transfer It Get Lender to Waive Recourse Keep out of Trust and Indemnify Trust

CRT Money Tree