Copyright © 2009 EBS Responsible Wealth

A charitable remainder trust can be a wonderful planning technique when one owns low basis/ high value assets.  Under a charitable remainder trust you would generally contribute appreciated assets to the trust and retain an interest for your life or the joint life of you and your spouse.

There are two types of charitable remainder trusts. An Annuity Trust pays you a fixed amount for the rest of your lives, regardless of what happens to the value of the principal in the trust. A Unitrust pays you a percentage of the fair market value of the assets, as recalculated each year.  After you both die whatever assets then remaining in trust will be paid to the charities of your choosing.

A charitable remainder trust (except in very limited circumstances) is exempt from paying any income taxes.  Let’s assume you contribute stock to the trust having a value of $250,000 and virtually no basis.  Had you sold the stock yourself, capital gains of approximately $50,000 would be due, and you would only have $200,000 remaining to reinvest.  On the other hand, if the charitable remainder trust were to sell the stock, it would not have to pay any taxes, and would have the full $250,000 to reinvest.

In addition to the opportunity to increase your yield from this investment, you are also entitled to a charitable deduction for a portion of the assets placed into trust. This deduction can be used against a maximum of 30% of your annual adjusted gross income, and any unused deduction may be carried forward for five years

Many people combine a Charitable Remainder Trust with a “Wealth Replacement Trust,” which purchases insurance to replace, for your children and/or grandchildren, the “loss” of the assets from your estate that will go to charity.  The benefit is that when properly structured, any insurance proceeds will be received income tax free and not be subject to estate tax. In some instances, the income tax savings from the charitable deduction plus the increased annual yield may be sufficient to fund the wealth replacement trust with life insurance.

Internal Revenue Service Circular 230 Disclosure
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any tax advice set forth herein with respect to U.S. federal tax issues was not intended or written by E. Brian Singer, Shaun Singer, EBS Group, EBS Responsible Wealth, or EBS Business & Investment Group, Inc., to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.

Our role is to help you evaluate planning techniques that can reduce your future estate tax and gift tax, and increase the wealth transferred to your family. Brian Singer is not an attorney. Although he is a CPA (Inactive-California), it is not his intention to become your CPA. He no longer engages in the practice of public accounting. This and any other analysis or discussion is not meant to address all the issues and risks as you might find in a technical legal analysis. That task, if necessary, and if you are willing to pay the fee, is the responsibility of your attorney. Brian Singer attempts to take complicated tax principles and reduce them to understandable techniques for the layperson, in plain English. Any discussion and/or written analysis are meant to give you an overview of the anticipated benefits to be derived by employing specific techniques.  Final responsibility for the tax aspects rests with the attorney of your choosing. All techniques require careful drafting by a highly competent tax attorney with specialized knowledge.  A concept that might work when competently drafted, could fail as a result of mistakes made in the documents prepared by an attorney not proficient in these areas. The appreciation rates, investment earning rates, tax rates, valuation discounts, and other factors are hypothetical assumptions.  The benefits from implementing any technique will ultimately be better or worse than described depending upon variation from the assumptions. There are no guaranteed results; either in an economic analysis or in application of the tax law. We hope you will decide to use our services. Any planning we propose is incidental to the purchase of insurance. Since insurance is used to pay estate tax, the less tax you will owe, the less insurance required. The planning is essential in the determination of your insurance needs. You are in no way obligated to purchase any insurance. If it makes sense for you, then buy it; if it doesn’t make sense for you, then don’t buy it. You are not expected to do anything that you feel is not in your best interest. We may choose to disengage at any time.

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Copyright © 2009 EBS Responsible Wealth