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

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FIFTH ANNUAL GREATER KANSAS CITY FORUM ON CHARITABLE TAX STRATEGIES CHARITABLE TAX PLANNING TECHNIQUES IN BUSINESS SUCCESSION PLANS. CHARITABLE REMAINDER TRUST. Irrevocable trust benefiting non-charitable and charitable beneficiaries Pays no income tax

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FIFTH ANNUAL GREATER KANSAS CITYFORUM ON CHARITABLE TAX STRATEGIESCHARITABLE TAX PLANNING TECHNIQUES IN BUSINESS SUCCESSION PLANS
charitable remainder trust
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
charitable remainder unitrust
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
irrevocable life insurance trust
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
irrevocable life insurance trust continued
IRREVOCABLE LIFE INSURANCE TRUST (CONTINUED)
  • ATTRIBUTES
    • Irrevocable
    • Not subject to generation skipping transfer tax if exemption applied to trust
case study example no 1
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

case study example no 17
CASE STUDY EXAMPLE NO. 1
  • During the Lives of James Founder and Sally Founder

Gift of

ABC Stock

Income Tax

Deduction

Fund With Income

Tax Savings and

Unitrust Distributions

Cash

ABC

FLIP/NIMCRUT

8%

Stock

Irrevocable Life

Insurance Trust

case study example no 1 continued
CASE STUDY EXAMPLE NO. 1 (CONTINUED)
  • Upon Death of Survivor of James Founder and Sally Founder

Charitable Remainder

Unitrust

Irrevocable Life

Insurance Trust

Cash Allocated

Among Trusts for

Three Children and

Their Descendants

Termination of

Trust and Distribution

of Assets

Charity

family limited partnership
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
charitable lead trust
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
charitable lead trust continued
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
charitable lead trust continued12
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
charitable lead annuity trust
CHARITABLE LEAD ANNUITY TRUST
  • Charitable lead trust
    • Pays fixed percentage initial value trust assets to charitable beneficiary - “annuity amount”
private foundation
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
intentionally defective grantor trust idgt
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
case study example no 3
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

case study example no 317
CASE STUDY EXAMPLE NO. 3

Founder

Children

James &

Sally

Founder

Non-Grantor Charitable

Lead Annuity Trust

$1.875M

$187,500 a year

Ten Year Term

Cash

$17,588

$1.875M

Limited

Partnership

Interests

(99.5%)

Cash

$3.125M

Remainder Interest

$506K

Membership

Interest

$375K

Founder

Children

$1.875M

Founder

Family

Foundation

LLC

Founder Family

Investments, L.P.

Assets: $3.517M

Commercial

Rental Real Estate

GP

(.5%)

$506K

$506K

Note

Remainder Interest

$9M

Separate Children’s GST

Trusts (Grantor Trusts to

the Children)

case study example no 4

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

case study example no 419
CASE STUDY EXAMPLE NO. 4

Founder

Children

James &

Sally

Founder

Grantor Charitable

Lead Annuity Trust

$2.1875M

$218,750 a year

$1.597M

Income Tax Deduction

Ten Year Term

Cash

$17,588

$2.1875M

Limited

Partnership

Interests

Cash

$3.125M

Remainder Interest

$590.6K

Membership

Interest

$375K

Founder

Children

$2.1875M

Founder

Family

Foundation

LLC

Founder Family

Investments, L.P.

Assets: $3.517M

Commercial

Rental Real Estate

GP

(.5%)

$590.6K

$590.6K

Note

Remainder Interest

$6M

Separate Children’s GST

Trusts (Grantor Trusts to

James and Sally Founder)

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