San Francisco, CA – 408-777-0776 – In a prior post, we talked about the FLIP-CRUT idea in which a Charitable Remainder Trust starts its life as an Earnings Charitable Remainder Trust, and upon a “Triggering Event”, transforms to a Standard Charitable Remainder Trust at a set percentage distribution.
Certainly, the whole FLIP-CRUT idea hinges on the Treasury Department’s definition of a Triggering Event – at which time the Net Income CRT transforms to the Standard CRT, with its annual payment requirement.
Let’s examine this Activating Event concept by exploring some fundamentals:
1. The Triggering Event needs to be clearly defined 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 specified in the FLIP-CRUT document OR it MAY be upon the specific incident 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 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 feels like it;.
3. Upon the advice of the Donor’s financial consultant, Certified Public Accountant 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 other individual.
Examples of Triggering Events that WOULD Work:.
1. On the first day of June in the 3rd year after the FLIP-CRUT is developed;.
2. Upon the marriage, divorce, death, or birth of a child of the Donor;.
3. Upon the sale of unmarketable assets that are not cash, cash equivalents, or other possessions that can be readily offered or exchanged for money or cash equivalents.
Because it is a fixed date that is specified in the FLIP-CRUT document, # 1 works.
# 2 works due to the fact that these life occasions are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other individual.
# 3 works since the sale of unmarketable possessions needs two parties – a Purchaser and a Seller – both of whom have to agree on a a great deal of identifying factors. Both sides are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person.
Additional Treasury Department Guidance about Acceptable Triggering Events.
In Treas. Reg. §1.664-3(a)(1)(i)(e) the Regulations provide seven (7) examples of what an acceptable triggering event might involve. These “safe harbors” should not be considered unique in nature.
They are:.
1. Upon the sale of the Donor’s former individual residence;.
2. The sale of securities for which there is no available securities exemption allowing a public sale.
3. When the earnings 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 income recipient’s dad dies.
While these are not the only circumstances that will be authorized, each of them is a safe harbor, indicating they should be approved if the fact-pattern matches the safe harbor.
It is important to have the suggestions of qualified legal and tax counsel when considering establishing a FLIP-CRUT.
Call a Charitable Giving Attorney with Ainer and Fraker 800-775-7612 right away to find out how you can profit from the powerful tax advantages of a FLIP-CRUT.
