2-20-25 Transcript | CRT Experts, LLC

CRT Options to Match Your Clients' Changing Needs

2-20-25

Speaker: Evan Unzelman, CEO, CRT Experts, LLC

Synopsis

A charitable remainder trust (CRT) may be a perfect fit for a client's situation when it is established. But these irrevocable trusts usually last for decades. Your life has probably changed significantly in the last 20-25 years and it's very likely your clients' lives and needs have as well. Most CRTs in existence today were created in the 1990s or early 2000s and many no longer "fit" with the client's situation today. Clients may have grown tired of the administrative hassles, perhaps they would prefer full access to their future income now, or they may be looking for additional ways to benefit their children.

Webinar Transcript

Welcome.

My name is Evan Unzelman. I am the CEO of CRT experts.

And thank you for joining us today to talk about CRT options to match your client's changing needs.

Just a couple housekeeping items here at the outset. We are recording the Webinar.

We will send you it to you sometime tomorrow. We will email out a link where you can watch a

replay.

Also send out the slides and speaker notes for everyone.

We have disabled the Q&A, but obviously if you have any questions, uh, we'll put our contact information up at the end. Please give a call, shoot us an email.

We'll be happy to answer any questions that you may have.

So, let's get started. Just at the outset, some background on CRT Experts, the team here. What makes us CRT experts?

for several of us here, on the team at CRT Experts, we have spent our entire professional lives working with charitable remainder trusts.

For me personally, in the early 2000’s right out of college, I was tasked with developing a secondary market for the income interest in a charitable remainder trust.

What we learned then, and what we'll talk a lot about today, since it's really at the core of the tax and legal around these options is that the income interest in a charitable remainder trust is a capital asset.

Just like stocks, bonds, real estate, that is a capital asset that the income interest holder, the income beneficiary of the CRT can sell or roll over into a new CRT for heirs or with a different payout rate or give the charity.

And that's where I've spent most of my career with CRTs, is what we call secondary planning options.

So we're working with CRTs that are usually fairly deep into their lifecycles. What old and cold, mature CRTs, whatever you want to call them 10, 15, 20 plus years removed from the creation of the CRT.

Working with those clients first, helping them understand what they own and what their income interest is. It's a capital asset and what they can do with it.

Then working with their advisors to figure out do one of these secondary planning options. The options that we'll talk about here today, do those fit with the client's goals today.

We do run the gamut, in terms of the CRT lifecycle here at CRT experts.

we work a lot, really at the very front end of the process, designing CRTs, really with the goal of maximizing flexibility for the donor, for the taxpayer.

When we talk about flexibility, typically what we mean there is a couple things.

One, flexibility over the income stream itself, the ability to regulate the cash flows from the CRT using what's called a net income with makeup CRUT or an NIMCRUT.

And then the duration of the CRT, making sure that we're maxing out the duration of the trust while still staying inside of the rules and passing that 10% test.

What that typically means is we want to put not only the donors on, but children, even grandchildren for successor term to get that expected duration up to 55 to 60 years on the trust.

We do administer CRTs, particularly the more complex structures, the NIMCRUT structure I just talked about.

But the specialty here at CRT experts is what we'll talk about today.

Secondary planning, working with clients who want to sell their income interests or roll those CRTs over to new CRTs with different terms.

We're headquartered here in Northern Virginia just outside of Washington, D.C in Leesburg, Virginia.

You can see our building up there on on the screen if you're ever in our area look us up.

Whenever I'm talking on this topic, we're talking about potentially exiting a CRT in effect changing a CRT.

I always want to start with an important point and that this is NOT an anti-CRT discussion.

CRTs are powerful tax planning vehicles.

We'll high level that here in a second.

They last a long time and sometimes there's a need for change.

To drive this point, we use what we call the house analogy.

So when we think about buying a house or building one thing that's probably true is we don't go into that decision with the mindset that we're going to live in it forever.

There's a lot of things in our lives that would lead us to someday sell the house.

The kids moving out, hopefully moving out, warmer weather state beckons, a lower tax state beckons, health changes, divorce, death of a spouse, remarriage, things like that.

Life changes but that doesn't mean that it was a bad decision to buy the house.

And we didn't drive utility from the home when we lived in it or didn't work well when we lived in.

It's just life change.

We got tired of mowing four acres and we wanted to downsize.

So that we think that is a good analogy for CRTs.

You know, CRTs last in most cases quite some time and just because we're talking today about exiting a trust selling the income interest rolling it over and effect changing it, it doesn't mean that it was a bad decision to create the trust.

Doesn't mean that it didn't work well when the client was taking income from the trust.

Just means that life changed.

We need to break apart those decisions, that decision the client made many years ago, in most cases to create the trust with the decision today, with respect to what does the client do with their interest in the trust that capital asset.

So, just quickly I know we all know what CRTs are, but to sort of set the stage, let's just quickly kind of go pros and cons on CRTs.

CRTs, of course, are predominantly used for tax planning.

So in most cases, the goal with the charitable remainder trust is to defer capital gains tax.

In most cases, the CRT is funded with a highly appreciated asset, and with the goal of selling that asset, not paying the tax and deferring that tax to the future. It's not a tax avoidance, of course, we're just deferring the tax.

If our goal is to avoid the tax or our goal is a charity, we're just going to give that asset outright to charity.

With the CRT, we wanted to, we want to donate the appreciated property, sell it without paying the tax,

but we retain that income stream from the CRT, so that tax upfront, tax deferral and then that income stream moving forward, really the drivers behind the CRT where we do get a tax deduction.

It's usually a pretty small, in terms of the overall size of the CRT because it's that tax deduction is a present value calculation of what's eventually going to go to charity.

And in most cases, because CRTs are tied to lifetimes that's going to be quite some time out into the future.

On the cons, like most things in life, there are cons.

The primary drawback with the CRT is rooted in this, inherent combination that as long as we've got a lifetime CRT, which most CRTs are, so that income stream is tied to the income beneficiaries lifetime.

There's this combination of an irrevocable trust, which all CRTs are in a pretty long duration in most cases, 10, 20, 30 plus year duration.

And so, while that's a perfect fit when the client creates the trust that irrevocable trust can't change.

And as we get out 5 years, 10 years, 15 years, what happens is a client life starts changing and the trust can't flex along with the client's life.

So we have this trust that was a great decision when we created it many years ago but today we're just in a much different situation with different planning goals.

So that's the key drawback with the CRT.

What we'll talk about today is when that drawback presents itself and the misalignment occurs or exists, we'll talk about what the options are and how to solve that misalignment.

In most cases it is solvable fairly directly.

This is more than ever a relevant topic.

And, what I mean by that is when what we're talking about is these misalignments that occur 10, 15 plus years into the CRTs lifecycle.

Well, when we look at the universe of CRTs, most CRTs are in that window and we know this because the IRS releases periodically data on the CRT marketplace, really all split interest trusts.

So charitable lead trust and charitable remainder trusts.

So that gives, gives us some transparency into the marketplace.

We know there's about 90,000 CRTs in the United States.

This is based off of the last release which was January, 2024, so about a year ago.

And then there's about a two year lag on the returns, the tax returns on which that data was based.

2022 for the most part, tax returns but still fairly current and a fairly accurate picture of the marketplace.

As you can see up here on the screen, most CRTs out there, if we, if we look at the percentages, 58%, so majority of CRTs are over 20 years old.

We add another 17%, so that's 75%.

So three quarters of CRTs in existence today, are more than 15 years old, 83% are more than 10 years old.

And at first, that would seem counterintuitive.

CRTs are tied in most cases to people's lifetime.

If we have a lot of more CRTs were created in the 90s than in 2015 to 2000 or 2010 to 2020, we would expect even if more were created, a lot of those clients have passed away or if they set up as term trust.

They've termed out those terms have expired.

Even though that has happened, there's still a lot more CRTs out there today that were created in the 90s that were created in 2010 to 2020.

We know that for a fact because of this IRS data.

So, while that is counterintuitive, when we really think about it, there's an easy answer, and that is the capital gains rate.

The capital gains rate, it dropped in 2000.

It decreased in 2003, mid 2003 and that's where we saw a bit fewer CRTs were created there.

There's other things in the 90s, not only did we have a, a high capital gain rate, late 90s, early 2000s, we had the market run up.

So we had a lot of appreciated property out there.

That's what led to todays marketplace that's quite old in terms of CRT age.

Now, when we think about these older CRTs, as I alluded to these are CRTs that are really in that window when these misalignments are most likely to be occurring,

At CRT Experts, we've looked at over the last 23 years almost 10,000 CRTs.

So, we've got a pretty good data set there.

And what that data set suggests is that about 10 years is where we start to see misalignments.

That's when we would recommend advisors start sitting down with clients and looking at, okay, here's what you own here, here's what your options are.

Then really moving forward, not surprisingly, the misalignments are going to occur at an increasing rate.

The older that CRT is, the further we are removed from creating the trust, the more things will have changed for the client, and the more likely that there's going to be a misalignment.

So when we overlay the IRS data with our data, that tells us, okay, this is where we want to start to look for these misalignments, this is where they're occurring.

We sort of see this batch down here seven, which is three quarters of CRTs are really in that window when misalignments are most likely to occur.

So that's why when we say, this is really a particularly relevant topic today versus 20 years ago when all these CRTs were new, we're inside of 10 years, unlikely to be misalignments there since we're so close

to actually creating that trust.

The good news is when misalignments occur, there's good flexibility, surprisingly, to most advisors and clients who have CRTs.

There's good flexibility, to solve those misalignments.

We'll talk about the three options today, the three secondary planning options.

Each of these options is from a tax and legal standpoint, is rooted in this 1972 revenue ruling.

What this 1972 revenue ruling which you see up here on the screen, what that says is that an income interest in a trust, not just a CRT, but an income interest, a life interest in a trust is a capital asset.

So as long as we have a willing buyer and seller, that could be sold, the sale proceeds are long term capital gain property in the hands of the seller.

So any CRT that's been in place for more than a year, that income interest is saleable.

The sale proceeds would be long-term capital gain property.

There were some private letter rulings in the in the 2000s helpful because those look squarely at the income interest in a CRT.

But all they do is refer back to that 1972 revenue ruling.

So that's what's creating this flexibility and it's surprisingly for us anyway, this is all we do.

It's just the lack of awareness out there.

Helping clients understand my income interest in my CRT is just like my other capital assets,

my investment real estate, my publicly traded stock, closely held stock.

It's an asset that I can sell, contribute to a new CRT, what we call a CRT rollover, or give the charity.

So, what we want to do now, we want to drill into each of these options.

What makes this fairly easy, once everything is sort of uncovered and a review is done, these options are quite distinct.

The outcome is serving a pretty specific goal from the client standpoint.

And that goal is going to be is the client's goal themselves.

If I have a CRT, and there's a misalignment, I want to exit the trust for whatever reason.

We'll talk about that here today.

But the goal is, I want as much money possible when I exit the trust.

We're going to be looking at the sale option.

We'll look at this first.

It's by far the most common, the most often utilized out of these three options.

If the goal is not themselves, but their heirs, children, grandchildren, then we're going to be looking at the rollover option.

If the goal is not themselves, it's not the kids grandkids, we're going to be looking at the gift, what we call gifting out, the charitable option.

So we're going to look at each of these three options.

I'll come back to sort of this point at the end in terms of matching the client's goal with the planning option.

They're different planning options.

But if we can uncover the goal, generally speaking, one of these options is going to be a good fit for the client.

So the sale option it's probably the simplest out of the three.

And it's also the most commonly utilized.

From just a practical standpoint, fairly easy to get arms around it.

In essence, what the sale does is enable the income beneficiary of the CRT to convert their future CRT income into a cash payment today.

They're selling their right to the future income stream.

That income interest, which we've seen as a capital asset, they are selling that to a third party in exchange for cash.

The third party steps into the seller's shoes as the income beneficiary and takes the income stream moving forward.

They also own the administrative responsibility.

So, the trust itself is not affected by the sale transaction.

This is a sale to a third party.

Third party brings cash to escrow and pays the seller, the owner of the income interest cash.

The third party then owns the right to receive income from that CRT moving forward.

So before we jump in and talk about some of the drivers, let's talk about the buyers.

Something we're asked a lot.

Who would buy the income interest from a CRT?

First, who are not the buyers?

CRT Experts is NOT a buyer. We just broker the sale for fee.

We will talk about that in a little bit.

Charities are NOT buyers.

If you have a charity that buys the non-charitable interest, you no longer have a non-charitable beneficiary.

So we'll talk about a termination briefly.

With the sale of the income interest, these are non-charitable buyers most often.

So we're always going to be working on the buyer side with either a taxpayer, an individual family group, or a taxable entity.

But in most cases, they're going to be tax advantaged.

In some ways. They're going to have some form of a tax attribute that would enable them to take that income at a lower effective tax rate than the seller.

That's tax differential, which in most cases drives these transactions.

For example, the initial group of buyers we worked with now 20 plus years ago they were business partners who had a taxable entity with a large net operating loss or all you CPAs out there, you know

if you've got that NOL with that net operating loss, commonly called an NOL, you need ordinary income.

So they were looking at different sources of income streams.

What they liked about potentially buying the income stream from a CRT is that person who owns

the income stream currently is usually paying a pretty healthy tax rate on that CRT income.

So, all else equal, if we're using similar growth rates and life expectancies, it's just going to be worth more to someone who's not paying the same tax rate.

So, we're not picky.

We're looking outside of the obvious, high liquidity, high net worth, good liquidity.

What typically we're looking for is an individual or an entity with some form of a tax attribute.

It could be individuals with capital loss carry, forge, unused charitable deductions, the NOL within a business, within a taxable entity is a common one.

So that's what we're looking for.

At the end of the day, what we want to do is use that tax differential between the buyer and the seller to arrange a sale at a price that would make sense for both sides.

The economics of the transaction is not a driver.

The seller's not getting a huge premium 20, 30% premium to their value for selling the income interest.

It's not driving people to sell.

We'll talk about what the drivers are, but regardless of the driver, we want to make sure, of course, that this also makes good tax and financial sense as well.

And so most of the time, unless the client who has the CRT is just not paying any tax on that CRT income, which is possible, but certainly not common, they're probably going to be able to sell that future income stream at, or often a little bit above the value of keeping it which does set this apart to many sales of guture cash flows where that that seller is forced to take a discount in exchange for the upfront liquidity.

From a tax standpoint, again, not typically a driver, but we can demonstrate that it makes tax sense.

Let's compare the taxation of the sale proceeds with the sale option to the CRT income.

If I have a CRT and it's worth $100,000.

I will look at an actual example here in a minute, but if I run the numbers and based on life expectancy, the expected rate of return, I think I'm going to get $100,000 of income over my remaining lifetime, and I can sell that income interest for $100,000.

So, I'm indifferent on a pre-tax basis $100,000 of CRT income, or I can sell it to this third party now

for $100,000.

On a pre-tax basis, I'm indifferent, but let's tax effect those options because a tax treatment is not the same for all you CPAs out there.

You know that with a 5227, the CRT tax return, we're running the income from the CRT that's distributed to the income beneficiaries through this four tier accounting structure.

And it's worst in first out.

So, any ordinary income has to come out first, then capital gain.

In most cases, if I have a $100,000 of future CRT income, I'm going to pay some combination of my capital gain and ordinary rates on that income.

The sale proceeds, on the other hand, as we've seen, that's going to be pure capital gain.

So even though on a pre-tax basis, I'm indifferent.

I'm going to pay less on the sale proceeds because they're taxed at a better tax rate the pure capital gain versus some combination or with CRTs that are in annuities or fixed income or something like that, NIMCRUTs that won't distribute capital gain.

It might be all ordinary income coming out of the CRT.

So from a tax and financial standpoint you know, these are benefits, but not typically drivers.

What typically drives the transactions as you would imagine, is very client specific.

But if we have to kind of rank out some of the ones that we hear a lot at this time of year, a lot of it, when the clients are dealing with that 5227 that CRT tax return, we hear a lot of what we call the simplification driver.

It's just, you know, I'm tired of dealing with the administration on the trust.

I'm trying to simplify my financial affairs as I grow older.

I like that the sale relieves me of the administrative burden that shifted off onto to the buyer at the end of the day with the sale, we're converting in effect, future income into, into a cash payment today.

So the client is making the decision that I would rather have this lump sum of cash than wait the rest

of my life for this income stream.

I could sit here until next week and talk about the reasons we've heard from clients as far as why they want or need that liquidity.

But a in a lot of cases, it comes down to family.

They like the idea of retaking control of assets for heirs.

We always joke here, if the kids always made the decision, we would do a lot more transactions.

You know, if my parents have a CRT there's no direct benefit to me, they die everything goes to charity.

If they sell their income interest in the trust and I'm included in their planning that's freeing up assets that they can give to me.

So for a lot of clients the goal, they're going to do it in different ways.

Obviously, some want to make gifts.

Now, some will do it later, but a lot of times it will revolve around family, children, and grandchildren.

Just real quickly before the sale, until the early 2000s when the secondary market was developed, the only way to exit a CRT was what's called a commutation or a termination.

Still possible, but it's not typically the right decision for the client because they're just not going to get as much money.

If I terminate the CRT now, we're going to terminate the trust and that's a deemed sale of my interest to the charitable remaindermen.

That transaction the valuations are bound by the IRS valuations for the income interest and the remainder interest.

If we look at the sale, in the vast majority of cases the client's going to be able to get quite a bit more in a secondary market than what they would receive if they terminated the CRT.

I compare this a lot to real estate again.

If we assess value of my house the county assessor comes out, assesses it for purposes of taxation, me paying the property tax typically I can go out and sell.

If I go out and list my house in the real world, I'm going to be able to sell at a price above that assessed value.

That's similar here we're using an IRS formula versus the real world.

So, we don't see a lot of terminations anymore just simply because the client's going to get quite a bit more than if they were to terminate that CRT and accept that IRS valuation.

So what I want to do now is look at an actual transaction that we recently completed and we'll use that to sort of put some numbers to the sale option.

But then we'll also use that to look at the other two options, the rollover and the gift out option.

So this is an actual transaction that we recently completed for the Rosie family, John and Terry in the Denver area.

They had created a CRT, very common fact pattern, created a CRT, I think it was Apple Stock that was highly appreciated, wanted to defer the capital gain.

We're taking 7% a year, things work fine, but just, that was a long time ago.

We actually did over the last few years, did a couple reviews for them, and on that second review, decided to go ahead and sell their income interest.

So, let's look at the numbers here and to again to bring this to an actual situation.

When we value a CRT income interest, and we'll go through it, but it's straightforward valuation.

There's only three variables, and one of them is already set.

That's the CRTs payout rate.

We also need to in the case of a lifetime trust, which most are, we need to estimate, well, how long do we expect that income stream to last?

What's the duration of that income stream?

So, to estimate that, we'll look at mortality tables and then we need to make some assumptions in terms of what do we expect the investment return to be moving forward.

When we're valuing or when we're looking at duration of the income stream what we look at three mortality tables, you can see them up here on the screen.

The 2010 cm, we use that be we look at that first it's always going to be the lowest life expectancy,

but we use that because that's the same table that the IRS uses or requires to be used when valuing unitrust interest for deduction purposes.

So, when we set up our CRT, this is the table that the IRS is using when we're doing that calculation to pass the 10% test to determine what the deduction is for the donor.

We'll also look at the RMD table, the table that the IRS uses when calculating RMDs.

And then we'll look at what's pretty much always going to be, sometimes RMD and the IR will be within a year.

I'm not sure if I've ever seen them be the same.

But typically, as in, in the Rosie's case, the IR table is going to be even a couple years beyond or longer than the RMD table.

And the reason for that it's based on a more recent data.

It incorporates mortality improvements and it's the table itself is based off and the mortality rates are based off of purchasers of annuities.

So these are, these are individuals who have made financial bets on their longevity.

This is a very typical sort of spread in terms of these mortality tables.

You can see for John and Terry, 78 and 73, we get a 16 year, 19 year, 21 year joint life expectancy.

So that gives us a range.

We're not just going to say well here's the value.

We're going to look at the value at each of those durations, and we're going to use that to erect an arrange a present value range for the income interest investment return, unless we've got a really high payout,10%, 11% plus percent, we just recommend just peg the investment return to the growth rate

or to the distribution rate for the trust.

So in the, in the Rosie's case, 7% trust, just assume it grows at seven.

That makes, it's just a simpler analysis.

You know, no one has a crystal ball, obviously.

But we're not running Monte Carlo here.

We know if in the Rosie's case we're just going to assume it nets 7% growth a year since it's distributing it.

Now we've got a constant stream of cash flows and that's just simpler for the client to get their arms around.

In the Rosie's case, you could see they had a six or CRT is about $600,000, so we assume it's earning

and distributing 7% a year.

So that leads to this consistent $42,000 a year income stream.

So ultimately, what the Rosies are selling in the sale option is the right to that $42,000 income stream, given their ages. That's most likely 16 to 21 years of that, of that income stream.

And you can see the values about 400 to $450,000 depending on which mortality table life expectancy that we're using.

Easy calculation to do in Excel.

There's thousands of these calculators online.

We've put one up here.

The point of course, is you can see we're getting the exact same number, $455,092 at that longest IAR life expectancy.

Same thing in Excel, same thing here in our review.

So ultimately, what we can conclude here is given these assumptions, the right to receive $42,000 per year over the remaining lifetimes of beneficiaries John and Terry's age is worth about $455,000 in today's dollars.

The next thing we'll look at is the IRS value.

So the IRS value is it's the same calculation we would do if we were creating a CRT for John and Terry today with $600,000 in their current ages today.

This is the same calculation we would have to do if we terminated that CRT.

So we can see with a $600,000 CRT 78 and 73-year-old, 7%, this would be their deduction.

If they created that CRT today, this is the value of their income interest, 383 to about $384,000.

So bookmark that number.

We'll need that number when we look at gift option, the IRS value of the income interest.

But when it comes to the valuation with respect to what, you know, if John and Terry want to exit their CRT what option is going to be most attractive,

You can see why people rarely terminate.

The termination value is and this is common, it's almost always going to be even below the bottom end of that present value range.

And it, in this case, again, common, they were able to sell their income interest for just a little bit above the top end of that valuation range.

So if, you know someone called me on the phone and put me on the spot and said, well, just give me an estimate, we're always going to look at that present value range.

Look at the top of that range that $450,000 range in this case, they were able to get a little bit more.

So that's the sale option.

So when we go back to client objectives the client that says, I want to exit the trust. I want the most money possible.

Now, what if the client's not looking? That's not the goal set.

So the client, yes, they're not a good fit with their CRT, there's this misalignment, but they're not looking at it from their perspective.

They don't in this case, they don't want the $475,000 of cash.

The first thing we're then we're going to look at is, okay do we have heirs? Do we

Have children or grandchildren that we would like to benefit?

If that is the case, then we're going to be looking at the Rollover.

So with the CRT rollover, the high level way to look at the rollover is we're using the income interest.

We know in John and Terry's case, they own an income interest that has a real world value of $475,000.

Yes, they can sell that personally and that goes into their own bank account and they go on their merry way.

But if they're not, that's not where's a fit with the rollover.

It's the client that says, no, I'm not, I don't want $475,000 of capital gain.

I don't need the money and I don't want to pay that tax.

But I do have kids that I'm interested in transferring more wealth to that's going to be a good fit for a rollover.

What we're going to do is we're going to create a CRT.

We've got a ground up build blank slate for the attorney.

Okay? So now we can put the kids on, we can put the grandkids on.

In many cases, John and Terry in our example they'll be the initial income beneficiaries.

But they'll structure that CRT for deferral. So the kids and grandkids are successor income beneficiaries.

But that trust is put in deferral and just grows tax free for the remainder of John and Terry's lifetime.

So we use what's called a life plus term CRT, where it goes for the kids' lives, plus the grandkids for a term of years. So there's good flexibility there.

When we're creating this new CRT, we're structuring exactly how John and Terry want it today.

And so we've got this CRT that's just, just exactly how they want it.

Now we're just, we're going to use their income interest in their existing CRT to fund and monetize that new CRT. So they irrevocably contribute that income interest to the new CRT.

We have a buyer here who's willing to pay $475,000 for their income interest.

The buyer doesn't care who they're buying that from.

John and Terry own it.

They'll pay John and Terry $475,000.

John and Terry form this new

CRT Contribute the income interest to the new CRT.

So that owns it. The buyer will buy it from the new CRT.

Of course, the advantage with the new CRT is it is a taxable event, but it's a taxable event to the new

CRT so that there's no capital gains tax owed.

That's one obvious advantage to the rollover in that we're able to keep that full $475,000 in that new CRT for their kids.

So if we kind of visualize this here, if we look at the sale we have $475,000 paid for that income interest.

That goes to John and Terry personally, their bank account.

They do whatever they want with it versus the rollover.

We've got that $475,000 funding a new CRT that is usually, ultimately going to be for the benefit of children and grandchildren well beyond the scope of this webinar.

But as I mentioned earlier, we can really do some creative planning with that new CRT when it comes to the kids and grandkids.

If we want to use a NIMCRUT structure to put that new CRT in deferral, if we have multiple children, sometimes we need to use multiple CRTs.

But if we use that NIMCRUT structure we use that life plus term so we can maximize that duration.

It goes to John and Terry and their son for his lifetime and then to the son's children for a fixed term of years.

And then we set up another one to the daughter goes John and Terry goes it's in deferral during John and Terry's lifetime, then to the daughter for her lifetime.

She takes income, and then the balance to as long as we can extend that term, sometimes it's only 10,

whatever, you can't go more than 20, but we're going to get that out as far as we can until that new CRT doesn't pass the 10% test.

So, what we want to do is maximize the duration of that new CRT.

If you're interested in that conversation you can see the link up there to that webinar where we're talking about designing CRTs for maximum flexibility and duration.

Okay, moving on to the third option.

So now, okay, so John and Terry again, but it's a different situation.

John and Terry they're not looking for that $475,000 for themselves.

Either they don't have kids or they're not interested in transferring additional wealth to their kids.

Almost by process of elimination, we're left with NIMCRUT the charity option.

In some cases this isn't processed by elimination.

That's the goal and the client make clear that I want out of the trust.

I just want to give everything to charity and be done with it.

This is where we're going to arrive.

We call this gifting out.

At the end of the day what's happening here is the John and Terry, in our example, the income beneficiary of the CRT will irrevocably contribute or assign their income interest to the charitable remaindermen.

Let's say I have a CRT in Children's Hospital.

As the remainderman, I will vest it.

So I will make that irrevocable vest that remainder interest.

I will then contribute my income interest irrevocably to Children's Hospital.

At that point, the entire trust goes to Children's Hospital and I get a tax deduction.

So, we're asked a lot, am I double dipping here? No.

When I set up my CRT my deduction was based on the remainder interest, what the IRS projected would eventually go to charity.

Here I'm giving the other interest away, the non-charitable interest, the income interest.

So, I can take a tax deduction equal to the IRS value of my income interest recall that we saw in John

and Terry's case that was $384,000.

So what we do need to is file form 8283.

This is a non-cash.

Another thing we're asked a lot, well, if the CRT is fully in cash why does a client need to file an 8283?

Which is required if it's a non-marketable asset non cash contribution, it's not the cash in the CRT that the client's giving away, they're giving their income interest to the charitable remaindermen.

So you do need to file that 8283 finding an appraiser that has access to estate planning software, same software you saw the output earlier when we showed the IRS valuation for John and Terry's interest.

It's a simple calculation to do.

Now, let's compare sale, rollover, versus gift.

Remember, with the sale, we have about $475,000. This is the client that says, I want the most money possible in my, in my pocket.

The client's not looking at that, but they have kids and their kids. They're still trying to get additional wealth to kids. Then let’s look at the rollover option.

If that's not the case, then we'll look at if the goal is either the goal is charity or the client wants out and just either doesn't have kids or they don't have anyone they would want to name as the beneficiary of the new CRT and the rollover, we're going to be looking at the gift out option.

It's great for charity, right?

Now, if John and Terry did the gift option, the charity's getting paid a lot earlier 20, 16

to 21 years earlier, as we saw from John and Terry's standpoint, though, they get that $384,000 tax deduction, which for a top bracket payers worth, you know, somewhere in the $150,000 range.

So, very different options as we mentioned earlier.

And I said, I would come back to this very different options.

And that's good because as soon as we uncover the client who has a CRT what they are looking to do?

In a lot of cases it's the trust is working fine, but if they're looking to exit that trust, there's a misalignment.

What's the client's goal?

The client's goal is maximum value to client.

To myself, we're going to look at the sale.

If the goal is maximum value to heirs, in some cases, it's not heirs.

We've done a fair amount where it's a, a younger spouse usually a second marriage where that younger spouse is not an income beneficiary of the current CRT.

So, it could be some, it doesn't have to be heirs. Usually it is.

But if that's the goal, we're going to be looking at the rollover.

If the goal is charity, we're going to be looking at gifting out.

So good options, good flexibility, that's available to clients who are, again, pretty deep into the life cycles with their with their CRTs.

It all starts with client awareness. With the review.

We do not charge to review a CRT.

We are only paid if we do a transaction, whether it's a sale or a rollover.

Our typical fee is 3% of the sale price. But we're only paid if a transaction is completed.

So we do not charge, just to review the CRT, we don't need any documentation, any identifying information.

We just need what you can see up there on the screen the nearest ages of any income beneficiary, or birth dates, the payout rate of the trust and the approximate trust value.

With that information, we'll put together a written review for the advisors they could take a look at.

Okay, these are what the options are.

If they want us to narrow those down before they go to the client, we can narrow them down to the one that the client is going to be most interested in.

We are happy to do that.

And again, we do not charge for the review.

Okay, so that we will conclude our presentation here today.

Again, thank you for joining us on behalf of all of us at CRT Experts.

I hope this has been informative, enlightening and of course, if you have just any general questions, either based on the presentation or just a CRT question in general, please don't hesitate to reach out.

Phone numbers up on the screen.

Email is up on the screen.

I always happy to answer those questions.

And of course, we're always happy to review a CRT and provide a written review of what we talked about today, what that client owns, that income interest, what their options are, and attach values to, to each of those options.

So again, hopefully this was informative.

Thank you for joining us.

Have a great rest of your day, rest of the week, and hopefully we'll hear from you sometime soon.