Los Gatos, CA – 800-775-7612 – In a prior post, we went over the FLIP-CRUT idea in which a Charitable Remainder Trust starts its life as a Net Income Charitable Remainder Trust, and upon a “Triggering Event”, transforms to a Standard Charitable Remainder Trust at a fixed percentage distribution.
Certainly, the whole FLIP-CRUT idea depends upon the Treasury Department’s definition of a Triggering Event – at which time the Net Income CRT converts to the Standard CRT, with its yearly payment requirement.
So let’s analyze this Triggering Event concept by exploring some fundamentals:
1. The Triggering Event must 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 certain incident of an OCCASION:.
3. If the Triggering Event is specified as an Event, then the event of that Event needs to not be “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or other individual. Treas. Reg. §1.664-3(a)(1)(i)(c)(1)
Examples of Triggering Events that WOULD NOT Work.
1. Upon the decision of the Donor (or Trustee) to offer the portfolio of extremely valued openly traded securities;.
2. Whenever the Trustee gets around to it;.
3. Upon the recommendations of the Donor’s financial advisor, CPA or other fiduciary that now is an ideal time to offer.
Each of these are examples of EVENTS that are “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other person.
Examples of Triggering Events that WOULD Work:.
1. On the very first day of June in the 3rd 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 assets that are not cash, money equivalents, or other possessions that can be easily offered or exchanged for money or cash equivalents.
# 1 works because it is a set date that is specified in the FLIP-CRUT document.
# 2 works due to the fact that these life events 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 assets requires two parties – a Buyer and a Seller – both of whom should concur on a a great deal of figuring out factors. Both sides are not “Discretionary With”, or “Under the Control of” the Donor, the Trustee, or any other individual.
Additional Treasury Department Guidance about Acceptable Triggering Events.
In Treas. Reg. §1.664-3(a)(1)(i)(e) the Regulations offer seven (7) examples of exactly what an acceptable triggering occasion may look like. These “safe harbors” should not be considered exclusive in nature.
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 income recipient reaches a specific age;.
4. When the Donor gets married;.
5. When the Donor divorces;.
6. When the income recipient’s very first child is born; and.
7. When the earnings recipient’s father dies.
While these are not the only circumstances that will be approved, each of them is a safe harbor, indicating they should be authorized if the fact-pattern matches the safe harbor.
When considering setting up a FLIP-CRUT, it is critical to have the advice of competent legal and tax counsel.
To learn more about the amazing tax benefits of a FLIP-CRUT Consult with a Planned Giving Attorney at Ainer and Fraker 408-777-0776 right away.