Estate Planning for Parents of Special Needs Kids


Estate Planning is important for all families.

However, it is especially critical for families with one or more children with special needs.  Without proper planning, valuable government resources may be jeopardized, or worse, lost forever.

What in the World is a FLIP-CRUT?

Recently, I was working with a client to design a Charitable Remainder Trust to which he could donate his $3.2 million real property.

During the meeting, he expressed his desire not to sell the property inside the Charitable Remainder Trust until the second or third year after contribution.

At which point, I asked him: “Have you ever considered a FLIP-CRUT?”

To which he remarked: “What in the world is a FLIP-CRUT?”

To which I responded:  “It’s a special type of Charitable Remainder Trust, allowing you to defer the annual income payout until after the real property sells.”

Here’s how it works.

Normally, a Charitable Remainder Trust is required to distribute either a fixed percentage (unitrust) or fixed payment amount (annuity) to the Donor, no less than annually.

But what if the Trust doesn’t have assets that are capable of generating that amount each year?

The answer is to begin with a Net Income Charitable Remainder Trust, with provisions allowing it to convert (or FLIP) to a Standard Charitable Remainder Trust on some future event.

During the initial period, the CRT will distribute the lesser of Net Income or the Unitrust amount.  If there is no Net Income, then the amount distributed that year will be zero.

Upon the occurrence of a “Triggering Event”, the Trust then converts to a Standard CRT, and distributes the initially defined percentage.

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

During the initial period, before the sale of the real property, the net income will be zero.

However, upon the occurrence of the Triggering Event – in this case the sale of the real property – the CRT begins it’s annual 8% unitrust distribution to the Donor.

There are a couple of important rules to the use of a FLIP-CRUT:

(1) The “triggering event” may not be a factor “under the control” of the Donor.  Oddly enough, however, the sale of real property is not deemed to be “under the control” of the Donor.

(2) The Donor may also be the Trustee of the CRT in certain cases.  However, if difficult to value assets are contributed – such as real property, partnership interests…basically anything other than cash or publicly traded securities – than an outside Special Independent Trustee will be required to handle those transactions.

CONCLUSION: The FLIP-CRUT is an ideal vehicle when you wish to transfer Unmarketable Assets – or those that may not immediately produce income – to a Charitable Remainder Trust.  You can still enjoy the substantial tax benefits of a CRT, while not being forced to distribute Income until it is available.

How to Choose the Right Type of Professional Trustee

In a prior podcast, we discussed how discussing the subject of Successor Trusteeship is one of the most important conversations you can have with your clients.

We also discussed how the “default’ selection of a family member trustee can lead to family disharmony, and even conflict.

It is important for you to know, however, that just because a client is considering a professional trustee, it doesn’t necessarily mean they must find a local bank trust department to help them.

In this podcast, listen as San Jose Estate Planning Attorney John Erik Fraker discusses the two types of professional trustees: (1) Corporate or Bank Trustees and (2) Professional Fiduciaries.



Family Member Trustee vs. Professional Trustee

In an earlier podcast, we discussed how talking with your clients about the issue of Successor Trusteeship for their family trust is a key to establishing long-term, profitable relationships.

In that podcast, we stated that many attorneys don’t think that family members make the best Trustees, and often will recommend that a client considers using a professional or corporate trustee.

Listen as Tax and Estate Attorney John Erik Fraker discusses the pros/cons of choosing a family member trustee vs. a professional.

The Single Most Important Question You Can Ask Your Clients

As a financial advisor, would you like to establish strong, profitable relationships not only with your clients, but with their children and grandchildren as well?

Of course you would!

Long-term relationships with clients and their families are some of the most profitable and rewarding relationships you can have.

Listen as Tax and Estate Attorney John Erik Fraker discusses the Single Most Important Question that you must ask your clients if you want to establish these multi-generational relationships.