Oakland, CA – 800-775-7612 – In a prior post, we explained the FLIP-CRUT technique in which a Charitable Remainder Trust starts its life as a Net Income Charitable Remainder Trust, and upon a specific “Triggering Event”, changes to a Standard Charitable Remainder Trust at a defined percentage payout.
Additionally we looked at relevant Treasury Department definitions of Triggering Events, that are judged not to be subject to the control of the Trustee or Grantor or any other 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, closely-held securities or various business holdings that are not publicly traded, and therefore are without a 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. 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 important when using a FLIP-CRUT to sell appreciated real estate.
If you have a piece of investment that is highly appreciated in value, and selling it outright would result in substantial capital gains tax, a Charitable Remainder Trust is an exceptional way to postpone the tax at the time of sale.
If you donate the real estate to a Charitable Remainder Trust after a binding obligation to sell already exists, then unfortunately the IRS will not allow the deduction based on the Step Transaction Doctrine.
Contributing real property in a Standard Charitable Remainder Trust may also not be feasible due to its fixed yearly commitment to distribute the Unitrust or Annuity amount to the Grantor.
A Standard Charitable Remainder Trust does not get the job done, if the real property takes takes a good amount of time to sell (surely more than a year).
This is why the Treasury Departments inclusion of Real Property as not being readily marketable is critical. It allows you to grant the asset immediately, get back the appropriate deductions, and after that convert to a Standard Charitable Remainder Trust after there is sufficient liquidity (post-sale) to accomplish the annual payout requirements.
Therefore, the FLIP-CRUT is truly the best vehicle when selling appreciated assets that are not readily marketable, like real estate.
Connect with a Planned Giving Attorney 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.