Oakland, CA – 408-777-0776 – In a previous post, we discussed the FLIP-CRUT principle in which a Charitable Remainder Trust begins its life as a Net Income Charitable Remainder Trust, and upon a “Triggering Event”, converts to a Conventional Charitable Remainder Trust at a fixed percentage distribution.
Undoubtedly, the entire FLIP-CRUT principle hinges on the Treasury Department’s definition of a Triggering Event – at which time the Net Income CRT transforms to the Requirement CRT, with its yearly payout requirement.
Let’s analyze this Activating Event idea by checking out some basics:
1. The Triggering Event has to be plainly specified in the FLIP-CRUT document. Treas. Reg. §1.664-3(a)(1)(i)(c)
2. The Triggering Event may be a particular DATE that is specified in the FLIP-CRUT document OR it MAY be upon the specific event of an EVENT, however:.
3. If the Triggering Event is specified as an Event, then the event of that Event can not be “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or other individual. Treas. Reg. §1.664-3(a)(1)(i)(c)(1)
Examples of Triggering Events that WOULD NOT Work.
1. Upon the choice of the Donor (or Trustee) to sell the profile of extremely valued openly traded securities;.
2. Whenever the Trustee gets around to it;.
3. Upon the recommendations of the Donor’s financial consultant, CPA or other fiduciary that now is an ideal time to sell.
Each of these are examples of EVENTS that are “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person.
Examples of Triggering Events that WOULD Work:.
1. On the very first day of June in the Third year after the FLIP-CRUT is established;.
2. Upon the marriage, divorce, death, or birth of a child of the Donor;.
3. Upon the sale of unmarketable properties that are not money, cash equivalents, or other assets that can be easily offered or exchanged for money or money equivalents.
Since it is a set date that is defined in the FLIP-CRUT document, # 1 works.
# 2 works because these life occasions are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or other individual.
# 3 works since the sale of unmarketable possessions needs 2 parties – a Buyer and a Seller – both of whom need to settle on a substantial number of determining factors. Both sides are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person.
Further Treasury Department Guidance about Appropriate Triggering Events.
In Treas. Reg. §1.664-3(a)(1)(i)(e) the Regulations provide seven (7) examples of exactly what an appropriate triggering event might involve. These “safe harbors” should not be thought about exclusive in nature.
1. Upon the sale of the Donor’s previous individual home;.
2. The sale of securities for which there is no readily available securities exemption permitting a public sale.
3. When the earnings recipient reaches a particular age;.
4. When the Donor gets wed;.
5. When the Donor divorces;.
6. When the earnings recipient’s very first kid is born; and.
7. When the income recipient’s dad passes away.
While these are not the only situations that will be approved, each of them is a safe harbor, meaning they should be approved if the fact-pattern matches the safe harbor.
When considering establishing a FLIP-CRUT, it is important to have the recommendations of competent legal and tax counsel.
To learn how you can take advantage of the amazing tax benefits of a FLIP-CRUT Consult with a Planned Giving Attorney with Ainer and Fraker 408-777-0776 right away.