Orinda, CA – 800-775-7612 – Previously, we explored the FLIP-CRUT technique in which a Charitable Remainder Trust begins as as a Net Income Charitable Remainder Trust, and at the time of a “Triggering Event”, switches over to a Standard Charitable Remainder Trust at a predetermined Unitrust or Annuity payout.
We also reviewed various Treasury Department definitions of Triggering Events, that are judged not subject to the control of the Trustee or Grantor or another person.
Among the most popular examples of Triggering Events is the sale of Unmarketable Assets, for instance, the sale of a Personal Residence, or any other real or commercial property, securities or various business holdings that are not publicly traded, and therefore are without any type of formal marketplace to value and sell.
In Treasury Regulations § 1.664-1(a)(7)(ii), the meaning of Unmarketable Assets includes:
Assets that are not cash, cash equivalents, or other assets that can be readily sold or exchanged for cash or cash equivalents. For example, unmarketable assets include real property, closely-held stock, and an unregistered security for which there is no available exemption permitting public sale.
Why this definition is essential when using a FLIP-CRUT to sell appreciated real estate.
A Charitable Remainder Trust is an excellent way to postpone the tax on sale if you own a piece of real estate that has appreciated in value, so that selling it outright would trigger considerable capital gains tax.
The IRS will unfortunately not allow the deduction due to the Step Transaction Doctrine if you contribute the real property to a Charitable Remainder Trust after a binding contract to sell already exists.
Putting real property in a Standard Charitable Remainder Trust may also not be feasible due to its fixed annual obligation to distribute the Unitrust or Annuity amount to the Grantor.
A Standard Charitable Remainder Trust will not work, if the real estate takes takes a while to sell (certainly more than a year).
This is why the Treasury Departments inclusion of Real Property as not being readily marketable is crucial. It allows you to donate the property immediately, take the appropriate deductions, and after that convert to a Standard Charitable Remainder Trust after there is enough liquidity (post-sale) to achieve the yearly distribution requirements.
The FLIP-CRUT is truly the preferred vehicle when selling appreciated assets that are not readily marketable, like real estate.
Get in touch with a Charitable Giving Lawyer at Ainer and Fraker 800-775-7612 today to find out how you can profit from the incredibly powerful tax benefits of a FLIP-CRUT.