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Planning with Charitable Remainder Trusts

Presented (with permission) By : James P. Alder, Esq. Alder & Robb, P.C. a nd Glen Wagstaff Managed Wealth Financial. Prepared and Authorized By :. Planning with Charitable Remainder Trusts. Do Your Clients Ever Need to Get Around Capital Gains Taxes?. For Assets such as:

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Planning with Charitable Remainder Trusts

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  1. Presented (with permission) By: James P. Alder, Esq. Alder & Robb, P.C. and Glen Wagstaff Managed Wealth Financial Prepared and Authorized By: Planning with Charitable Remainder Trusts

  2. Do Your Clients Ever Need to Get Around Capital Gains Taxes? • For Assets such as: • Stocks, investment property, and Real Estate over $200,000 • Normally, the only way to get around Capital Gains Taxes for high appreciated assets is to re-invest the proceeds of the sale into a similar asset, Right? • But, what if your client wants to live off the proceeds of the sale? • A Charitable Remainder Trust (CRT) • Can help!

  3. Consider an Example: • Mary Smith • 70 years old; • Has 3 Children and 4 Grandchildren • Owns a vacant lot which she bought for $1,000. It is now worth $350,000 Mary would like to sell this lot and is interviewing potential real estate brokers to assist her in the sale.

  4. How Much Are Capital Gains Taxes? Usually Capital Gains Taxes are determined by a Person’s Income Tax Bracket, which could be as high as 30 or 50% depending on their income level. Right Now Capital Gains Taxes are at 15% for all income levels, however the law is set to expire in 2012 unless expressly extended. 15 – 50%?!

  5. So, how can we help you, help Mary? What if You Could Offer a Way to: • Save over $50,000 on the sale of the property that she would otherwise pay to the government in capital gain taxes; • Deduct at least $35,000 from her income taxes; and • Invest the proceeds in a tax-free investment environment. • Then get paid for helping to set up the strategy?

  6. What benefits can a proper CRT Plan offer?

  7. House JOHN AND JANE SMITH LIVING TRUST Bank Accounts Business Investment Accts. How a Trust Works Assets are placed in the Trust which acts as its own entity for tax purposes. The trust maker chooses a Trustee to act as “manager” of the trust assets, while following the terms of the trust. Note: For CRT’s a trust maker must choose someone other than themselves as trustee

  8. The Charitable Remainder Trust • First the Trust is Created and the Assets are placed into the trust. • The Assets are Sold once inside the trust, and the proceeds are not taxed. • Normally, Capital Gains Taxes would be paid upon the sale, but because the Assets are inside the CRT, they are not taxable.

  9. Where the Money Goes • Next, The Proceeds are put into an investment vehicle like an annuity to guarantee an annual pay out to the Trustmaker. • The Pay out must be between 5% and 50% of the total assets and is paid as ordinary income unless the original assets were qualified money. Generally, an annuity can guarantee 4- 10% of the total amount as an income stream for life

  10. Distributions to the Trustmaker

  11. By the Time of Death • At the Trust maker’s death: • $1M of Life Insurance proceeds would go to Heirs • $1M of Trust Assets would go to NPO • The Trust maker will have lived on at least $1- 2M during their lifetime Assuming $1,000,000 of Initial Trust Assets

  12. Need 4 Actors: • Estate PlanningAttorney • Tax expert • Financial Planner • Real Estate agent Normally capital gains tax would leave a client receiving $1M dollars with close to $600K. But using a Charitable Remainder Trust, the $1M, pays out over $3M by the client’s death. YRS 1-5: * No tax annual distributions * Pay for Insurance Policy * Save some to subsidize taxes later * Live on Rest YRS 6- 10: *Taxed Distributions * Use saved $ to subsidize tax * Pay for insurance = paid up *Live on Rest YRS 11- Death: *Taxed distributions * As Insurance is paid, use that money to pay taxes * Live on Rest $1M $50K Annuity: 5- 10% Annual Distributions Charitable Remainder Trust Insurance Pays Death Benefit of $1M to heirs CRT pays $1M in 5- 15% annual distributions to N.P.O. Assuming client lives 20 years, will have lived on approx. $1M The Whole Picture(One Example)

  13. The Magic of this Strategy $1,000,000 $150- 500k Normally, a property owner would pay 15- 50% of the property’s value in taxes, leaving less than its value. In Taxes? OR Heirs Non- Profit Client This strategy allows a property owner to live off the proceeds without paying capital gains tax and effectively triple the property’s value!

  14. So, it’s a Win for Everyone • For this plan to work, you need: • Tax Professional • Agent for Sale (i.e. Real Estate Agent) • Financial Professional • Estate Planning Attorney We’re Here to Help: 4 Steps to Success Educating Marketing Consulting/ Support Legal Services

  15. Alder & Robb, P.C. The Wills and Trusts Law Firm 623 E. 2100 S. Salt Lake City, Utah 84106 Tel.: 801.463.2600 www.alder-robb.com Prepared and Authorized By:

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