IRS Examples of FLIP-CRUT Triggering Events that Work

Oakland, CA – 800-775-7612 – Clearly, the whole FLIP-CRUT concept depends upon the Treasury Department’s meaning of a Triggering Event – at which time the Net Income CRT transforms to the Requirement CRT, with its yearly payment requirement.

So let’s analyze this Triggering Event concept by checking out some essentials:

1. The Triggering Event must be clearly specified in the FLIP-CRUT document. Treas. Reg. §1.664-3(a)(1)(i)(c)
2. The Triggering Event may be a certain DATE that is defined in the FLIP-CRUT document OR it MAY be upon the specific occurrence of an EVENT, however:.
If the Triggering Event is defined as an Event, then the occurrence of that Event can not be “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person. 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 highly appreciated openly traded securities;.
2. Whenever the Trustee feels like it;.
3. Upon the advice of the Donor’s financial consultant, Certified Public Accountant or other fiduciary that now is a perfect 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 individual.

Examples of Triggering Events that WOULD Work:.

1. On the 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 cash, money equivalents, or other possessions that can be readily offered or exchanged for money or cash equivalents.

# 1 works due to the fact that it is a set date that is specified in the FLIP-CRUT document.

# 2 works because these life occasions are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person.

# 3 works due to the fact that the sale of unmarketable possessions requires two parties – a Buyer and a Seller – both of whom must concur on a a great deal of determining factors. Therefore, both sides are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other individual.

Additional Treasury Department Guidance as to 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 may look like. These “safe harbors” ought to not be thought about unique in nature.

They are:.

1. Upon the sale of the Donor’s previous individual house;.
2. The sale of securities for which there is no offered securities exemption permitting a public sale.
3. When the income recipient reaches a particular age;.
4. When the Donor gets married;.
5. When the Donor divorces;.
6. When the earnings recipient’s first kid is born; and.
7. When the earnings recipient’s father passes away.

While these are not the only scenarios that will certainly be authorized, each of them is a safe harbor, meaning they should be authorized if the fact-pattern matches the safe harbor.

It is vital to have the guidance of competent legal and tax counsel when thinking about setting up a FLIP-CRUT.

Connect with a Family Philanthropy Attorney at Ainer and Fraker 800-775-7612 right now to learn more about the incredible tax benefits of a FLIP-CRUT

A FLIP-CRUT is the Ideal Way to Sell Real Estate

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.

Exploring the Planned Giving Benefits of a FLIP-CRUT

Saratoga, CA – 408-777-0776 – One of the most flexible techniques in the Planned Giving Attorney’s toolbox is the FLIP-CRUT.

It helps clients who wish to contribute a specific piece of real estate (or other unmarketable assets) to a Charitable Remainder Trust, but they aren’t certain exactly when the real property is going to be sold.

As a General Rule, this is going to be a big problem, since a Standard Charitable Remainder Trust is obligated to distribute its Unitrust or Annuity amount regardless of whether sufficient income exists.

The FLIP-CRUT solves this problem by permitting you to defer the Unitrust or Annuity distribution until after the investment property (or other unmarketable asset) is sold.

This is the way it works.

Usually, a Charitable Remainder Trust is required to disburse either a fixed percentage (unitrust) or fixed payment amount (annuity) to the Donor, no less frequently than on an annual basis.

But what happens the Trust doesn’t have assets that are capable of paying out the required amount yearly?

The answer is to start with a Net Income Charitable Remainder Trust, which has provisions allowing it to switch over (or FLIP) into a Standard Charitable Remainder Trust on a specified event in the future.

During the initial term, the CRT distributes the lesser of Net Income or the Unitrust amount. The amount paid out that year will be zero if there is no Net Income.

Upon the occurrence of a “Triggering Event”, the Trust then converts to a Standard Charitable Remainder Trust, and pays out the originally specified percentage.

For this client’s scenario, he contributed a $3.2 million piece of investment property, into an 8 %, 12 year FLIP-CRT.

During the initial period, prior to the sale of the real estate, the net income will be zero.

The CRT begins its annual 8 % unitrust distribution to the Grantor upon the occurrence of the Triggering Event – here in this situation the sale of the real estate.

A couple of critical rules to the use of a FLIP-CRUT:

(1) The “triggering event” may not be something that is “under the control” of the Donor. Interestingly enough, , the sale of real estate is not treated as to be “under the control” of the Grantor.

(2) The Donor may also be the Trustee of the CRT in some cases. An outside Special Independent Trustee is going to be required to manage the transactions if hard to value assets are donated – such as real estate, partnership interests … pretty much anything other than cash or publicly traded securities .

IN CONCLUSION: The FLIP-CRUT is an excellent instrument when you wish to donate Unmarketable Assets – or those that do not immediately produce income – to a Charitable Remainder Trust. You may still enjoy the substantial tax benefits of a Charitable Remainder Trust, while not being required to disperse Income until it is actually available.

Get in touch with a Family Philanthropy Attorney at Ainer and Fraker 408-777-0776 right now to find out how you can profit from the amazing tax benefits of a FLIP-CRUT.