1. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life
Charitable
Remainder Trusts

2. All slides are
taken from this
book which
includes
detailed
explanations of
all concepts.
Available from
Amazon.com
Full color version available at
www.createspace.com/4707238

3. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life

4. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust
assets

5. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
during life
or lives

6. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
for 20 years

7. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
$1,000 Per
Year for Life

8. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust assets

9. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust assets

10. The donor creates
the rules in a
Charitable
Remainder Trust,
but once created
it is irrevocable

11. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust assets

13. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust assets

15. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
5% of trust assets
?

16. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life

17. I would like to
use $50,000
per year from
my assets.
The rest, I
want to go to
my favorite
charity.

18. I want to
control my
own
investments
and spend
about 5% of
my assets
each year.
After death I
want it all to
go to charity.

19. I want to retire today,
but my pension
doesn’t start paying
for 9 more years. I
want to give assets
to charity, but I still
need $65,000 per
year for 9 years.

20. However, the
biggestreason for
donors to use
Charitable
Remainder
Trusts is…

21. Tax
Benefits

22. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life

23. With a
charitable gift
in a will, there
is no income
tax deduction

24. There are no capital gains taxes when a
donor makes a transfer to a CRT

25. A CRT is itself a nonprofit entity and
pays no capital gains tax when it sells
appreciated property

26. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life

27. A client holds low-basis
appreciated assets that
generate little income (e.g.,
developable land or small
business growth stock).
How can she convert to
diversified income-
generating investments?

28. Option 1: Sell it. Pay the capital gains
tax. Invest the remaining amount.
$1,000,000 zero basis asset
$238,000 tax (23.8% federal)
$762,000 left to invest

29. Option 1: Even worse in many states
$1,000,000 zero basis asset
$339,350 tax (33.935% Calif. + Fed.)
$660,650 left to invest

30. Option 1: Or with certain assets
$1,000,000 zero-basis art
$408,706 tax (40.87% Calif. + Fed.)
$591,294 left to invest

31. Option 1: Or certain holding periods
$1,000,000 zero-basis short-
term capital gain
$509,280 tax (50.928% Cal. + Fed.)
$490,720 left to invest
Note that gifts of
short-term capital
gain are deductible
only at basis

32. Option 2: Transfer to a CRT
$1,000,000 zero-basis asset
_____$0 tax (CRT pays no tax)
$1,000,000 left to invest

33. You can produce
more income
with $1,000,000
Than with
$762,000 or
$660,650 or
$591,294 or
$490,720

34. CRT Advantages
• Immediate income tax
deduction
• No capital gains tax on
transfer to CRT
• No capital gains tax
when CRT sells
• Lifetime income
CRT Concern?
• Remainder goes to
charity not to family
How can we address
this limitation?

35. Inheritance replacement by purchasing
ILIT life insurance with tax deduction or
part of payments

36. Tax rules
for CRTs

37. Charitable
deduction
is the
value of
what you
give less
the value
of what
you get
back (CRT
payments)

38. $100,000 Cash
─ Value of CRT payments
CharitableDeduction
Donor
gives
$100,000
CRTpays
age55
donor
$4,000per
yearforlife
$4,000
Payment
$100,000
Cash
Tax deduction is amount
gifted less value of
annuity/unitrust payments

39. What is the
value of CRT
payments?

40. Find the §7520 rate
http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
Multiply payment by annuity
factor in IRS Pub. 1457http://www.irs.gov/Retirement-Plans/Actuarial-Tables
Value of CRAT
payments

41. Find the §7520 rate
http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
I can choose
current or
one of last
two month’s
rate
$4,000/year
CRATage55
donoron
10/31/13
Aug 2.0%
Sept 2.0%
Oct 2.4%

42. Value of
annuity

43. Find the §7520 rate
2.4%http://www.irs.gov/Businesses/Small-Businesses-&-Self-
Employed/Section-7520-Interest-Rates
$4,000/year
CRATage55
donoron
10/31/13
I want the
lowest
annuity
valuation
[highest
charitable
deduction]
so I select
Oct. 2.4%

44. Section 1 Table S - Based on Life Table 2000CM
Interest at 2.4 Percent
Life Life
Age Annuity Estate Remainder Age Annuity Estate Remainder
0 34.2376 0.82170 0.17830 55 18.1993 0.43678 0.56322
1 34.3011 0.82323 0.17677 56 17.7570 0.42617 0.57383
2 34.1418 0.81940 0.18060 57 17.3129 0.41551 0.58449
3 33.9727 0.81534 0.18466 58 16.8678 0.40483 0.59517
4 33.7967 0.81112 0.18888 59 16.4213 0.39411 0.60589
Find the §7520 rate
2.4%www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-
7520-Interest-Rates
Multiply annual payment by
annuity factor in IRS Pub. 1457
$4,000 X 18.1993www.irs.gov/Retirement-Plans/Actuarial-Tables
$4,000/yearCRAT
age55donoron
10/31/13

45. Find the §7520 rate
2.4%www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Section-
7520-Interest-Rates
Multiply annual payment by
annuity factor in IRS Pub. 1457
$4,000 X 18.1993www.irs.gov/Retirement-Plans/Actuarial-Tables
Value of annuity
$72,797
If annuity
pays more
than
annually, add
adjustment
factor from
Table K
$4,000/yearCRAT
age55donoron
10/31/13

46. $100,000
Cash
Donor
gives
$100,000
CRATpays
age55
donor
$4,000per
yearforlife
$4,000
Annuity
$100,000 Cash
─ $72,797 Annuity
$27,203 Deduction

47. $100,000
Cash
Donor
gives
$100,000
CRUTpays
age55
donor5%
peryear
forlife
5% of CRUT
Payment
CRUT calculation
process

48. Section 1 Table U(1) - Based on Life Table 2000CM
Adjusted Payout Rate
Age 4.2% 4.4% 4.6% 4.8% 5.0% 5.2% 5.4% 5.6% 5.8% 6.0%
55 .37183 .35635 .34166 .32773 .31450 .30194 .29001 .27868 .26791 .25768
56 .38390 .36841 .35370 .33971 .32642 .31378 .30175 .29032 .27943 .26907
57 .39618 .38069 .36596 .35194 .33859 .32588 .31377 .30224 .29125 .28077
5%peryearage
55donoron
10/31/13with
annual
paymentson
10/31
Multiply transfer by remainder
interest factor in IRS Pub. 1458
$100,000 X .31450
www.irs.gov/Retirement-Plans/Actuarial-Tables
Charitable deduction
$31,450
CRUT deduction calculation

49. Ifpaymentsotherthanannualgiven
immediatelyafterannualvaluation,
calculateadjustedpayoutrate(APR)as
payoutrateXtableF(www.irs.gov/Retirement-Plans/Actuarial-Tables)
reductionusingappropriate§7520rate.
Iffactorforadjustedpayoutrate
(APR)isnotonunitrusttable,
use:
Factor above APR –
[(factor below APR –
factor above APR) X
((APR-rate below APR)
/.002 )]
CRUT calculation for differing payments

50. Donor CRT Charity
Anything Left
at Death
Payments
During Life
Initial
Transfer

51. Rule: 10% of
present value
minimum to
charity
Reality: Share
of CRT assets
to charity,
1.59%
Split interests trusts, filing year 2007,
Lisa Schreiber, IRS Statistics of Income
The IRS tax deduction is actuarially too
large because CRT donors live longer
Annuity purchasers
live longer (i.e., sick
people don’t buy
lifetime annuities)
Wealthy people live
longer (CRT donors
are very wealthy)
Charitable bequest
donors live longerSee: James, R.N., (2013) American Charitable
bequest demographics.

52. STEP 1: Using §7520 rate, at what
age will the CRAT exhaust?
Using a financial calculator solve for n (number of time periods) after entering present value
(initial CRAT assets), rate (§7520 rate), payments, and setting future value to 0. The
underlying formula is
STEP 2. Is there >5% chance the
donor will live that long?
(lx@age-of-exhaustion / lx@current-age, using Table 2000CM at
www.irs.gov/Retirement-Plans/Actuarial-Tables )
CRAT disqualified if >5% chance of
exhaustion due to annuitant longevity

53. So what
happens if it
doesn’t qualify
as a CRT?

54. Retained interest
gifts are not
otherwise
deductible. Trust
isn’t charitable and
pays taxes on any
gain or income.
No tax
benefits

55. How are
distributions
from a CRT
taxed?

56. When the trust makes a
payment, it opens the
spigot.
Ordinary income is paid
first, then capital gain and
so forth.
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

57. Donor gives $100,000 of stock
($10,000 basis) to CRT. The CRT
sells the stock, buys corporate
bonds generating $3,000 of
income and municipal bonds
generating $2,000 of tax
exempt income.
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

58. Donor gives $100,000 of stock
($10,000 basis) to CRT. The CRT
sells the stock, buys corporate
bonds generating $3,000 of
income and municipal bonds
generating $2,000 of tax
exempt income.
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

59. What is the tax treatment of a
$2,000 distribution?
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

60. What is the tax treatment of a
$2,000 distribution?
Recipient pays taxes on:
$2,000 of ordinary income
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

61. What is the tax treatment of a
$5,000 distribution?
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

62. What is the tax treatment of a
$5,000 distribution?
Recipient pays taxes on:
$3,000 of ordinary income
$2,000 of capital gain
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

63. What is the tax treatment of a
$10,000 distribution?
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

64. What is the tax treatment of a
$10,000 distribution?
Recipient pays taxes on:
$3,000 of ordinary income
$7,000 of capital gain
$10,000
$2,000
$90,000
$3,000
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

65. If CRT ordinary income
earnings are always higher
than distributions, no capital
gain tax will ever be paid.
Return of
Principal
Exempt
Income
Capital
Gain
Ordinary
Income

66. Other
charitable
remainder
trust
combinations

67. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Lesser of trust income
or 5% of trust assets

68. When would you want this limitation?

69. Suppose you want
the trust to hold a
non-income
producing asset
A normal payout
requirement could
force a sale
land, art, non-dividend or closely-held stock

70. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Lesser of trust income
or 5% of trust assets

71. Past payments
are made up
whenever net
income is
sufficient

72. NIMCRUTs may be
problematic when
later returns are
consistently less than
payout rates.
There isn’t enough
income to make
normal payouts or
make-up past
deficiencies.

73. “Flip CRUT”: A NICRUT/NIMCRUT that
converts to a CRUT at a trigger event
NICRUT/
NIMCRUT
Standard
CRUT
Trigger
Event

74. Common trigger events are sale of
hard-to-value property or reaching
retirement age

75. 2015 2016 2017 2018 2019 … Death
Initial
Transfer
Anything
Remaining
at Death
2014
TriggerEvent
Incomeupto
5%
Incomeupto
5%
Incomeupto
5%
5%
5%

76. 2015 2016 2017 2018 2019 … Death
Initial
Transfer
Anything
Remaining
at Death
2014
TriggerEvent
$0.00
Ex: Trigger is sale
of $1,000,000 of
non-income
producing land
funding CRT
$0.00
$0.00
$50,000
$51,000

77. CRT “spigot” trusts
Trustees flip income off
and on at will by
investment choice
• Commercial deferred annuities*
• Limited partnership interests
• Non-dividend paying growth
stocks
• Delay realizing gains (post-
transfer capital gain can count
as income)
*Limits on this activity currently “under review” by IRS

78. Conrad Teitell suggests
triggering a FLIP-CRUT using
a small, but hard-to-market,
asset such as one share of
closely-held stock
Then trustee sells
whenever the flip is desired
Flip
when
sold

79. A donor can give part of an
undivided interest (e.g., 75%
as tenants in common) to a
CRT.
Subsequent sale generates
capital gain for the retained
share, but the contribution
generates a tax deduction.

80. Charitable
Remainder Trust
Flexible & Expensive
• CRTs are individually
created according to the
specific desires of each
client
Charitable
Gift Annuity
Simple & Cheap
• CGAs from a charity are
usually identical except for
the dollar amount

81. The flexibility of
CRTs
• Unlimited number of
public charity or private
foundation beneficiaries
(income limitations pass
through)
• Open choice on payout
years and amounts
• Unlimited number of
income beneficiaries
• Special restrictions on
income beneficiaries
allowed (where
violation gives income
to alternate beneficiary)
– Spendthrift trusts
– Match earned income to
prevent “trust fund” kids
– Require random drug
tests

82. “Notwithstanding any provision of this Will to the
contrary, my grandchildren DAVID PANZIRER and WALTER
PANZIRER shall not be entitled to any distributions from
any trust established for such beneficiary's benefit under
this Will unless such beneficiary visits the grave of my late
son JAY PANZIRER, at least once each calendar year,
preferably on the anniversary of my said son's death
(March 31, 1982) (except that this provision shall not
apply during any period that the beneficiary is unable to
comply therewith by reason of physical or mental
disability as determined by my Trustees in their sole and
absolute discretion).”
Leona Helmsley’s Charitable
Remainder Unitrust created
in her will includes

83. What kind of property can a CRT hold?

84. Subchapter S corporation rules do not
allow CRT shareholders

85. 100% excise tax on Unrelated Business
Taxable Income (UBTI), where CRT is
running a business (e.g., owning as a sole
proprietor or partner) instead of being a
passive investor

86. Not UBTI
Dividends, interest,
annuities, royalties, rents
from real estate, and
capital gains, so long as
none of them involve
debt-financing
UBTI
Net income from running
a hotel, parking lot,
convenience store, coin
operated laundry
or
Debt financed net income

87. Ex: CRT receives a
$1,000,000 home
($100,000 basis).
Trustee makes
improvements
using a $100,000
mortgage
(acquisition
indebtedness) and
sells for $1,200,000.
Result?

88. Ex: CRT receives a
$1,000,000 home
($100,000 basis).
Trustee makes
improvements
using a $100,000
mortgage
(acquisition
indebtedness) and
sells for $1,200,000.
Due to debt
financing
$1,000,000 capital
gain is UBTI, taxed
at 100%, and lost.

89. Self-Dealing
CRT can’t sell,
lease, loan, or
allow use of assets
by CRT creator,
contributor,
trustee, or their
ancestors,
descendents, or
spouses

90. If all parties
agree can a
CRT be broken
and
distributed?

91. If all parties
agree can a
CRT be broken
and
distributed?
IRS has
allowed
termination &
distribution of
present value
of all interests
PLR 200208039

92. Donor plans to create
CRT with remainder
value sufficient to
build a building, but
charity needs building
now. Solutions?

93. Donor plans to create
CRT with remainder
value sufficient to
build a building, but
charity needs building
now. Solutions?
CRT may segregate
and pledge funds as
collateral for a loan
taken out by the
charity. (Charity can
pay off loan with
remainder at death.)
PLR 8807082

94. Donor CRT Charity
Initial
Transfer
Anything Left
at Death
Payments
During Life
Charitable
Remainder Trusts

95. Help me
HERE
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You!

97. This slide set is from the curriculum for
the Graduate Certificate in Charitable
Financial Planning at Texas Tech
University, home to the nation’s largest
graduate program in personal financial
planning.
To find out more about the online
Graduate Certificate in Charitable
Financial Planning go to
www.EncourageGenerosity.com
To find out more about the M.S. or
Ph.D. in personal financial planning at
Texas Tech University, go to
www.depts.ttu.edu/pfp/
Graduate Studies in
Charitable Financial Planning
at Texas Tech University