1.
Year-End Planning:
Charitable Remainder Trust
(CRT) Strategies
Presented by:
Robert S. Keebler, CPA, MST, AEP
Keebler & Associates LLP
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved

2.
Introduction
About the PFP Section & PFS Credential
• The AICPA PFP Section provides information,
resources, advocacy and guidance for CPAs who
specialize in providing estate, tax, retirement, risk
management and investment planning advice to
individuals and their closely held entities (learn more
at aicpa.org/PFP)
• The CPA/Personal Financial Specialist (PFS)
credential distinguishes CPAs as subject-matter
experts who have demonstrated their financial
planning knowledge through experience, education
and testing (learn more at aicpa.org/PFS)
American Institute of CPAs®
Personal Financial Planning Section
2

3.
Introduction
Robert S. Keebler, CPA, MST, AEP
Robert.Keebler@KeeblerandAssociates.com
920-593-1700
American Institute of CPAs®
Personal Financial Planning Section
3

4.
Charitable Remainder Trust (CRT)
A Charitable Remainder Trust (CRT) is a split
interest trust consisting of an income interest and a
remainder interest. During the term of the trust, the
income interest is usually paid out to the donor (or
some other named beneficiary). At the end of the
trust term, the remainder (whatever is left in the
trust) is paid to the charity or charities that have
been designated in the trust document.
PURPOSE OF STRATEGY (as it relates to the 3.8% NIIT): To harbor “net
investment income” in a tax-exempt environment while at the same time
leveling income over a longer period of time to keep MAGI below the
“threshold amount”.
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
4

5.
Charitable Remainder Trust (CRT)
Donor
(Income Beneficiary)
Donor receives an
immediate income tax
deduction for present
value of the remainder
interest (must be at least
10% of the value of the
assets originally
contributed)
Transfer of highlyappreciated assets
CRT
Annual (or more
frequent) payments
for life (or a term of
years)
At the donor’s death (or at
the end of the trust term),
the charity receives the
residual assets held in the
trust
Charity
(Remainder Beneficiary)
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
5

6.
Two Main Types of CRTs
Charitable Remainder Annuity Trust (CRAT)
• The beneficiaries receive a stated amount of the initial
trust assets each year
- The amount received is established at the beginning of the trust
and will not change during the term of the trust regardless of
investment
performance
(unless
inadequate
investment
performance causes the trust to run out of assets)
Charitable Remainder Unitrust (CRUT)
• Income beneficiaries receive a stated percentage of the
trust’s assets each year.
- The distribution will vary from year to year depending on the
investment performance of the trust assets and the amount
withdrawn
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
6
Personal Financial Planning Section
6

7.
Charitable Remainder Trusts
Charitable remainder trusts can be used to reduce
or avoid surtax and incremental capital gains tax by
smoothing out income
CRTs are particularly useful when a taxpayer has a
large capital gain that pushes income above the
applicable threshold amount (ATA)
Before explaining how the planning works, it will be
helpful to look at some background information
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
7

8.
CRTs – Taxation
The donor will NOT realize gain or loss when
property is transferred to the trust
However, the grantor may be required to recognize
gain if:
• Property transferred is subject to indebtedness that exceeds
grantor basis
• Grantor receives property from the trust in exchange for the
transfer to the trust.
The donor will NOT realize gain or loss if and when
the transferred assets are subsequently sold by the
trustee of the CRT
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
8

9.
CRTs – Taxation
The character of income received by the recipient is
subject to and controlled by the tier rules of IRC
§664(b)
• First, distributions are taxed as ordinary income
• Second, distributions are taxed as capital gains
• Third, distributions are taxed as tax-exempt income (e.g.
municipal bond income)
• Finally, distributions are assumed to be the non-taxable return of
principal
CRTs are not subject to the 3.8% surtax
CRTs are not subject to the new 5.0% incremental
capital gains tax
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
9

10.
CRTs – Taxation
© 2013 Prepared by Keebler & Associates, LLP
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American Institute of CPAs®
Personal Financial Planning Section
10

11.
Substantial Sale CRT
Substantial Sale CRT (Standard CRT)
• CRT to eliminate or reduce/defer the 3.8% Surtax and 5%
incremental capital gains tax
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
11

12.
Substantial Sale CRT - Example
T has a $1 million stock position with $0 basis.
Scenario 1 – T sells the entire position, incurring
20% capital gains tax, 3.8% net investment income
tax, and 5% state tax.
Scenario 2 – T moves the entire position to a 20-year
CRUT.
• The CRUT is assumed to distribute at 11.093%* rate per year
after 1 year.
• Tax savings from charitable donation is reinvested
In both scenarios, a 4% growth rate and 1.5% yield is assumed for assets
*Rate as of 8/13
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
12

13.
Substantial Sale CRT - Example
Net to Family
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Immediately
Scenario #2 - 20-Year CRUT
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
13

14.
Substantial Sale CRT - Example
Net to Family & Charity
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Immediately
Scenario #2 - 20-Year CRUT
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
14

15.
Retirement CRT
Retirement CRT
• CRT to eliminate or reduce the 3.8% surtax and 5% incremental
capital gains tax while deferring income until after retirement
© 2013 Prepared by Keebler & Associates, LLP
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American Institute of CPAs®
Personal Financial Planning Section
15

16.
Retirement CRT - Example
T has a $1 million stock position with $0 basis.
Scenario 1 – T sells the position in increments
over 10 years, incurring 20% capital gains tax,
3.8% net investment income tax, and 5% state
tax each year.
Scenario 2 – T moves the stock to a 20-year
CRUT in the same increments over 10 years.
• The CRUT is assumed to distribute at 11.093%* rate per
year after 10 years.
• Tax savings from charitable donation is reinvested
In both scenarios, a 4% growth rate and 1.5% yield is assumed for assets
*Rate as of 8/13
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
16

17.
Retirement CRT - Example
Net to Family
$1,600,000
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Stock Annually
Scenario #2 - 20-Year CRUT
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
17

18.
Retirement CRT - Example
Net to Family & Charity
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Stock Annually
Scenario #2 - 20-Year CRUT
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
18

19.
Income Shifting CRT
Income Shifting CRT (Standard CRT for children)
CRT to eliminate or reduce/defer the 3.8% surtax
and 5% incremental capital gains tax while shifting
the incidence of taxation to children and
grandchildren
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
19

20.
Income Shifting CRT
Shifts ordinary income to family
Shift capital gains to family members
Benefit charity
© 2013 Prepared by Keebler & Associates, LLP
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American Institute of CPAs®
Personal Financial Planning Section
20

21.
Charitable Remainder Trust (CRT) for
Benefit of Donor’s Children
Donor’s
Children and Grandchildren
Donor receives an
immediate income tax
deduction for present
value of the remainder
interest (must be at least
10% of the value of the
assets originally
contributed)
Transfer of highlyappreciated assets
Standard - CRT
Annual (or more
frequent) payments
for life (or a term of
years)
Considerations
• Income Tax
• Gift/Estate Tax
• Generation
Skipping Tax
At the donor’s death (or at
the end of the trust term),
the charity receives the
residual assets held in the
trust
Charity
(Remainder Beneficiary)
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
21

22.
Income Shifting CRT - Example
T has a $1 million stock position with $0 basis.
Scenario 1 – T sells the entire position, incurring 20% capital gains
tax, 3.8% net investment income tax, and 5% state tax.
Scenario 2 – T moves the entire position to a 20-year CRUT, for his
own benefit
• The CRUT is assumed to distribute at 11.093%* rate per year after 1
year.
• Tax savings from charitable donation is reinvested
Scenario 3 - T moves the entire position to a 20-year CRUT, for the
benefit of his children
• The CRUT is assumed to distribute at 11.093%* rate per year after 1
year.
• Tax savings from charitable donation is reinvested
• The children will have a 15% rate on Federal Capital Gains .
In both scenarios, a 4% growth rate and 1.5% yield is assumed for assets
*Rate as of 8/13
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
22

23.
Income Shifting CRT - Example
Net to Family
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Immediately
Scenario #2 - CRUT f/b/o Grantor
Scenario #3 - CRUT f/b/o Children
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
23

24.
Income Shifting CRT - Example
Net to Family & Charity
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Year
Scenario #1 - Sell Immediately
Scenario #2 - CRUT f/b/o Grantor
Scenario #3 - CRUT f/b/o Children
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
24

25.
Mathematics of
Charitable Planning in a
Four-Dimensional Tax
System
© 2013 Prepared by Keebler & Associates, LLP
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American Institute of CPAs®
Personal Financial Planning Section
25

26.
1 Year Payoff Vs. 10 Year Payoff - 23.8% Tax Rate
$120,000.00
$100,000.00
81%
Present Value ($)
$80,000.00
74%
67%
$60,000.00
$40,000.00
$20,000.00
$0.00
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
26

27.
1 Year Payoff Vs. 10 Year Payoff 15% Tax Rate
$70,000.00
$60,000.00
81%
Present Value ($)
$50,000.00
74%
67%
$40,000.00
$30,000.00
$20,000.00
$10,000.00
$0.00
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
27

28.
1 Year Payoff Vs. 20 Year Payoff 23.8% Tax Rate
$120,000.00
$100,000.00
Present Value ($)
$80,000.00
68%
57%
$60,000.00
49%
$40,000.00
$20,000.00
$0.00
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
28

29.
1 Year Payoff Vs. 20 Year Payoff 15% Tax Rate
$70,000.00
$60,000.00
$50,000.00
Present Value ($)
68%
57%
$40,000.00
49%
$30,000.00
$20,000.00
$10,000.00
$0.00
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
29

30.
Comparing the 23.8% to the 15% for 10 Years
120000
100000
81%
Present Value ($)
80000
74%
67%
60000
23.8%
15%
40000
20000
0
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
30

31.
Comparing the 23.8% to the 15% for 20 Years
120000
100000
Present Value ($)
80000
68%
57%
60000
49%
23.8%
15%
40000
20000
0
100
0
4
Discount Rate (%)
6
8
© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved
American Institute of CPAs®
Personal Financial Planning Section
31

32.
Required Disclosure Under Circular 230
Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated
by the United States Department of the Treasury, nothing contained in this
communication was intended or written to be used by any taxpayer for the purpose of
avoiding penalties that may be imposed on the taxpayer by the Internal Revenue
Service, and it cannot be used by any taxpayer for such purpose. No one, without
our express prior written permission, may use or refer to any tax advice in this
communication in promoting, marketing, or recommending a partnership or other
entity, investment plan or arrangement to any other party.
For discussion purposes only. This work is intended to provide general information
about the tax and other laws applicable to retirement benefits. The author, his firm or
anyone forwarding or reproducing this work shall have neither liability nor
responsibility to any person or entity with respect to any loss or damage caused, or
alleged to be caused, directly or indirectly by the information contained in this work.
This work does not represent tax, accounting, or legal advice. The individual
taxpayer is advised to and should rely on their own advisors.
American Institute of CPAs®
Personal Financial Planning Section
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33.
PFP Section Resources (aicpa.org/PFP)
The CPA’s Guide to Financial & Estate Planning– 1000-page, 4 volume,
in-depth guide for practitioners (updated for ATRA)
Forefield Advisor (aicpa.org/pfp/forefield)
• Client education and communication tool
• Written by CPAs, attorneys and other subject matter experts
• More than 3,000 resources covering personal financial planning,
including estate, tax, retirement, investment and risk management
planning
• Keyword searches: American Taxpayer Relief Act, net investment
income tax
American Institute of CPAs®
Personal Financial Planning Section
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34.
Resources for Post-ATRA & NIIT
Planning
Planning After ATRA and the Net Investment Income Tax Toolkit
•
•
aicpa.org/pfp/proactiveplanning
Complimentary PFP Section member/PFS credential holder benefit
Other Resources for Purchase from Bob Keebler (www.cpa2biz.com)
•
•
•
•
Tax Planning After the Healthcare Surtax: Tools, Tips, and Tactics*
The Small Business Jobs Act of 2010: Tools, Tips, and Tactics
The Tax Relief and Job Creation Act of 2010: Tools, Tips, and Tactics
The Rebirth of Roth: A CPA's Ultimate Guide for Client Care*
Coming soon! More Resources for Purchase from Bob Keebler*
•
•
Planning Opportunities After ATRA: Tools, Tips, and Tactics
Tax Rate Evaluator: A Graphical Calculator for Tax Planning After ATRA
Visit aicpa.org/pfp/join to become a member
*discounts available for PFP/PFS members
American Institute of CPAs®
Personal Financial Planning Section
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35.
Proactive Year-End Financial and Tax Planning
Where to Find More Education
10/25/2013
1:00-2:00p.m. ET
Year-End Financial and Tax Planning Strategies to Address ATRA and the
Net Investment Income Tax (Overview)*
11/11/2013
1:00-2:45p.m. ET
Top Estate and Income Tax Planning Strategies*
11/12/2013
1:00-2:45p.m. ET
Investment Tax Planning – Creating Tax Alpha*
1/20-22/2014
Las Vegas
AICPA Advanced Personal Financial Planning Conference
(cpa2biz.com/PFP)
• Advanced education covering tax, estate, retirement, investments
and risk management planning to be ready for 2014 and beyond
• 2-day pre-conference workshop on implementing a PFP practice,
Jan 18-19
To register and to view the full calendar of upcoming PFP
Section events, visit aicpa.org/PFP and click on CPE & Events.
*To access the archives, visit aicpa.org/pfp/webseminars.
American Institute of CPAs®
Personal Financial Planning Section
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36.
Contact AICPA PFP Team Staff with
Questions
financialplanning@aicpa.org
American Institute of CPAs®
Personal Financial Planning Section
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