Selling a CRT Income Interest

5-21-25

Speaker: Evan Unzelman, CEO, CRT Experts, LLC

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Synopsis

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People often think they are locked into their charitable remainder trust (CRT) because the trust is irrevocable. While a CRT is an irrevocable trust, the trust’s income interest – which you own – is a capital asset that can be sold. A sale converts your future CRT income into a cash payment today and shifts all future administrative responsibilities for the CRT to the buyer.

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On this informative webinar, Evan Unzelman – CEO of CRT Experts – discusses the legal and tax authorities for selling a CRT income interest and the capital gains tax treatment, why people choose to sell, how the sale process works, how the sale price is determined, and what costs are involved. Finally, he walks through a case study based on a recent transaction arranged by CRT Experts.

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Webinar Transcript

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Welcome! My name is Evan Unzelman.

 

I am the CEO of CRT Experts and thank you for joining us today. To discuss selling and income interest in a charitable remainder trust.

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We are recording the webinar here today for all of our live participants you'll get an email from me probably sometime tomorrow morning with a link where you can watch a replay of the webinar.

 

So let's get started.

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Before we jump in, just a quick overview of our background here at CRT Experts simply put.

All we do is CRTs. That's all we've done and all we plan on doing.  For several of us here at CRT Experts we have spent our entire professional lives working with charitable remainder trusts.

 

For me personally, in the early 2000s, I was right out of school. I was tasked with developing a secondary market for income interests of charitable remainder trusts.

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What we learned then, and what we'll talk quite a bit today about, because it's really at the core from a tax and legal standpoint.

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What we learned is that the income interest in a charitable remainder trust is a capital asset.

Just like other capital assets, it can be bought and sold, it can be given to charity, it can be used to create a new CRT with different terms.

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So, surprisingly to many people who have CRTs. There's pretty good flexibility with respect to what you can do with your income interests in the trust as you enter into the CRT life cycle.

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And we'll talk a lot about that, of course, today. That's where we focused.

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Most of our careers working with CRTs is on these options, what we call CRT secondary planning options.

Working with clients who have CRTs, their advisors, their families, reviewing the CRTs to make sure they understand what they own, what they can do with it.

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And where the facts fit, helping them pursue one of these options in many cases.

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We really do view ourselves primarily or initially as a reviewer of CRTs.

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Our experience has shown that as long as the options are presented clearly in an unbiased manner the decision as far as whether one of these options makes sense or not is usually straightforward.

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And we'll go through why that is here today. At last count in January of 2025, the team here at CRT Experts had reviewed almost 10,000 CRTs north of 9,500 over the last 20 to 25, 23 to be specific, 23 years.

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We run the gamut in terms of our service offering when it comes to CRTs, so we work a lot at the front end of the CRT life cycle, designing, working with trust and estate attorneys primarily.

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To design, draft, and implement CRTs. We administer CRTs. Um, but the thrust of the business here, and our focus, and our experience.

Really is deepest with what we'll talk about here today, what we call CRT secondary planning.

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Helping people who have CRTs first review their trust and then where the facts fit, helping them sell their income interests, or roll over to a new CRT with different terms.

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We're located here in Leesburg, Virginia. You can see our building there on the right of the slide.

I'm a West Coaster originally. I was born and raised in Washington State.

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I’ve been back here 20-plus years now, but the history back here on the East Coast just never ceases to amaze me. We were lucky enough to acquire this building here a couple of years ago, that's where we're headquartered. It was built in 1825. Pretty neat history that we're excited about continuing to preserve it.

If a lot of people are curious, where are we in the country? Northern Virginia, if you've ever been in and out of DC, Washington, if you've come out of Dulles Airport.

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We're just northwest of Dulles in Northern Virginia. As I mentioned, personally I grew up in Washington State. I went to school out in Washington State, but then upon graduating college, moved out here to the East Coast.

 

I've worked with CRTs my entire career. Throughout my career with the range of charitable vehicles, charitable planning vehicles.

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Not just charitable remainder trusts, worked with charitable lead trusts, if you're familiar with a charitable lead trust, it's the inverse of a CRT. It pays charity first.

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And then, typically, what the remainder will go to heirs.

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Private foundations, public charities, donor-advised funds, you name it. But I've always enjoyed the most, the entity that I have always enjoyed working with the most.

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Is a charitable remainder trust and started CRT Experts here several years ago to focus exclusively on charitable remainder trusts.

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So, whenever I'm talking on the sale or the rollover, we are talking about potentially exiting a CRT, or with the rollover, in effect, changing a CRT, I always start with the house analogy. If you've heard me present before, you've heard it, so bear with me.

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We need to make an important point here at the outset in that, uh, this is not an anti-CRT discussion. We'll see here in a couple of slides; these are great tax planning vehicles.

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But we need to place the decision-making in contact. So, when we think about buying a house or maybe building a house.

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One thing that's probably true, when we go into that decision-making process, we don't necessarily expect to live there forever.

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There's a lot of things in our lives that would lead us to someday sell the home, whether its kids growing up and hopefully moving out.

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We're tired of mowing 3 acres, we want to downsize a warmer weather state beckons lower tax state beckons.

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You name it, there's a lot of things that can happen in our lives that would lead us to sell the house.

But the point is, it doesn't mean it was a bad decision to buy it or build it.

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It didn't mean it didn't work really well when we lived in it. And this is analogous to CRTs.

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You know, these are put in place for good reasons. But there's this inherent combination that we'll talk about that, in many cases, is going to lead to a misalignment as we get deeper and deeper into the life of the CRT.

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And what we'll talk about here today is how to solve that misalignment, but just because we're looking at a misalignment now.

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Doesn't mean that, just like with the house, it wasn't a good decision to create the CRT, doesn't mean it didn't work really well for many years, it just means that life changed, and the trust couldn't change along with it.

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So, everyone on our webinar here you all created a CRT, you know that these are very much tax planning vehicles. So, if we rank out, you know, why people create CRTs.

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Number one is usually because they own appreciated property.

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And they want to defer the tax, the capital gains tax, on the gain when it's sold.

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Of course, we can donate the property to the trust, the CRT, which is exempt, that can sell it.

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And produces income. That income stream. The right to receive that income stream.

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Typically the second, if we rank out the reasons, uh, and then a third is the income tax deduction we get when we create the CRT. Of course, that's just a percentage of the overall trust assets, or the assets that go into the trust, usually a pretty small percentage, so those first two reasons are really the drivers behind most CRT creations.

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Of course, charity, there is a charitable component to a charitable remainder trust.

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But that's not typically a driver. It's usually pretty low on the list, doesn't really even have to be a reason for creating the CRT.

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If an advisor tells us, well, my client created their CRT for charity, it's probably not the case, because if our goal is charity, if I own a million dollars in appreciated real estate, and I want to diversify that, I want to sell that.

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And I don't want to pay the tax, but my goal is charity.

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I'm going give that asset outright to charity. I'm going to have a much larger tax deduction.

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And I'm not going to pay any tax at all. CRTs are usually tax-driven in terms of the decision-making behind creating these trusts.

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From a relatively early stage in the life of the CRT, we've garnered these tax benefits. We've taken or started taking our deduction.

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That's when we've diversified the asset, deferred the gain. So, from a relatively early stage in the overall life of the CRT, our benefit with respect to the trust is rooted in this income interest, the right to receive income from that CRT.

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Like many things in life, most things in life, there are drawbacks. So, the main drawback with the CRT is rooted in this combination of an irrevocable trust.

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The key terms of the CRT cannot be changed, who the beneficiaries are, the income beneficiaries are, what the payout rate is, types of CRT, what different types of CRT. We have CRUTs, CRATs.

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NIMCRATs, NIMCRUTs, Flip CRUTs, you name it. We cannot change any of those terms. Those are in stone, and irrevocable once the trust is in place.

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So, we have a trust that cannot change But it has a really long duration.

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Most CRTs are tied to people's lifetimes, so we're looking at 20, 30, 40 plus years in terms of how long that trust is going to be in place.

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So, while it was a perfect fit when it was created and usually for some time, what often will happen is because that trust can't change.

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And over such a long duration. Our lives are going to change, inevitably.

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The tax environment's going to change, the economic environment's going to change, and that trust can't flex along with those changes and that's what very often will lead to a misalignment.

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Fortunately, when there is a misalignment, there's good flexibility available. We'll talk about that here today.

But first, let's look at this from a tax and legal standpoint. I know we're not tax attorneys or CPAs on this call, but the tax and legal is really pretty straightforward.

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The income interest in a trust, a charitable remainder trust is what it's commonly referred to as a split interest trust.

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One million dollars in a CRT, no one party owns that million dollars. I own the right to receive income from the trust; I'm the non-charitable beneficiary.

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That right to receive income is the income interest. Charity owns what's left at the end of my life, or joint lives with my spouse. The income interest is a capital asset, and that traces back to a 1972 revenue ruling, which you can see up here on the screen.

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What that revenue ruling says is that the life interest in a trust, not just a CRT in a trust.

Is a capital asset. So just like our other capital assets.

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Stocks, public stock, closely held private stock, real estate, these are the income interest in a CRT, like those assets, are a capital asset that can be bought and sold.

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The sale option, it can be used to create a new CRT, the rollover option.

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Or it can be given to charity, what we call gifting out the gift option.

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And so, that's the flexibility that I want to high level here, and then, of course, we're going to drill down and talk about the sale.

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In some detail. So, these three options that we see here, these are what, as I mentioned earlier, what we call CRT secondary planning options.

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As I mentioned, we've looked at almost 10,000 CRTs over the years, and what makes In terms of the decision-making relatively straightforward and easy is that these options are servicing a different, really a distinct fact pattern in each case.

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if my goal is I want maximum after-tax value, and I want the flexibility of cash.

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The sale option is going to make the most sense.

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If I'm looking to use my income interest, or there's something I want to change about my CRT, usually I want to add beneficiaries.

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Kids, grandkids, maybe a spouse who's not on the current CRT.

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Then we're going to be looking at the rollover option. Which does involve the sale. So, we'll focus on the sale option today, but I will as we look at our case study we'll use that to take a quick look at the rollover option.

And then third, if my goal is charity. I don't want the income stream anymore from the trust.

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I'm not looking for anything myself. Kids are done planning for, maybe I don't have kids, then I'm looking at how do I maximize charity's interest?

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Then we're just going to give our income interest to charity and be done with it. Very different goal sets. That's what makes this pretty easy. As long as we understand, okay, this is what we own, here's what we can do with it.

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Now, what are our objectives? We could pretty easily match those objectives with one of these options.

So today, we're going to talk about the sale option. This is the most utilized of the three.

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By a fairly wide margin certainly the rollover would be second.

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We don't see a whole lot of people who choose to gift their income interest, and that goes back to what we looked at earlier. 

People who are creating these CRTs are generally the type who are looking at, how do I maximize my own after-tax value, or maybe today, it might be my family's after-tax value.

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So, the first two on the sale and the rollover, what we see most often, but the sale is the most commonly utilized, and that's what we're going to jump into and take a look at.

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Here now. So, in essence, by selling an income interest in a CRT you are converting the future CRT income, the income you would receive over your remaining lifetime or joint lives with a spouse, you're converting that into a cash payment today. That's at its core, that's what we're doing.

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Most people who have CRTs are the trustees. CRTs are usually what's called self-trusted, meaning I created the trust, I'm the income beneficiary, I'm the trustee, we'd recommend that in most cases.

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So as the trustee, I'm responsible for the administration, that annual tax return for the CRT.

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If I sell my income interest that trustee is going to change. I'm going to resign as trustee.

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I'm going to appoint a successor trustee the buyer, or one of the buyer's advisors.

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That will shift off all of the future administrative responsibilities for the CRT, which is certainly a reason that a lot of people choose to sell.

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Who are the buyers? We're asked this a lot. First, who's not a buyer? We are not a buyer, CRT Experts is not a buyer. We broker the sale for a fee. We'll talk about that later.

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Charities are not buyers. If a charity bought the income interest, we no longer have a non-charitable beneficiary.

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All of the buyers that we work with are taxable. Whether it's a taxable individual, family, group.

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Or a taxable entity. But in most cases they're going to be tax-advantaged in some way. So, as an example.

The first group of buyers we worked with in the in the early 2000s, they were business partners who had a taxable entity with a large net operating loss in it. If you're familiar with a NOL, as you're usually called, a Net Operating Loss.

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You need income, you need ordinary income to use that up.

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And so they approached us about potentially buying the income streams from CRTs. What they thought would be there, and what's proven to be there is really what drives the transaction from a buyer and seller standpoint, and that is.

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You know, they knew that if they could use this tax attribute and take that income and not pay any tax on it.

That income stream's going to be worth more to them than someone who's paying tax on it. And that tax differential is what really drives the transactions in most cases. We're not picky as we develop the buyer pool. We've looked for you know, anything that would lead a potential buyer to put a higher valuation on that income stream than the seller, but it's usually tax-related. Maybe an individual with a capital loss carry forward, or a unused charitable deduction, something like that. Net operating losses in entities is very common.

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But what these will usually do, as long as we're using realistic assumptions as far as life expectancies and growth, investment return, growth rates.

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That will typically lead to a scenario where that income stream is just worth more to the buyer than the seller.

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And as the broker of the sale, that gives us the ability to range that sale at a price that would make sense for both sides.

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This does set the sale of an income interest apart from most sales of future cash flows. In most cases.

If I am selling a series of future income, future cash flows.

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I am forced to take a discount in exchange for that upfront liquidity.

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Unless I'm just not paying tax on my CRT income, which is possible, but quite rare.

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I am most likely, I'm going to have the ability to sell my income interest at sometimes even a little bit above the value of keeping it. Now, this isn't driving transactions. I'm not getting some huge financial premium.

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And we'll talk about what drives transactions, but once the decision is made, this sale, conceptually.

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Make sense. Of course, we also want to make sure it makes financial and tax sense.

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So that tax differential, if we have John Doe here, who has a CRT, he's paying even a low tax rate, say he's paying 20% effective tax rate on his income, CRT income.

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We know that if we can match him up with a buyer who's tax-advantaged and can keep 95, 100 cents in the dollar, there's a 20 cent spread there that allows us to arrange a sale at a price that makes sense for both sides.

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From a tax standpoint, again, not usually a driver. But we can certainly point to this as a benefit. So we've seen If I sell my income interest.

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That's a capital transaction. I'm selling a capital asset, so that's long-term capital gain property.

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That's not the case for the income from the CRT.

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So, if you're familiar with the way that your CRT income is taxed, it's taxed according to a four-tier accounting.

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Schedule that forces the highest taxable, the ordinary income out first. It's worst in, first out.

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So, the long and short of these rules is, in most cases, if I have a CRT, most people who have CRTs, they're paying either some combination of ordinary and capital gains tax on their distributions.

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Or, depending on how the trust is invested, they may be paying mostly or all ordinary income.

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So, if we look at now, if we look at these options on an after-tax basis, we can see this tax benefit.

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If I have an income interest in a CRT, and I expect that the trust will pay me $100,000 over my remaining lifetime.

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I take that income using my life expectancy assumption, my investment return assumption, I think that trust will pay me $100,000.

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Now, suppose there's a buyer who's willing to pay me $100,000 for that future income stream.

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So I'm indifferent on a pre-tax basis. $100,000, $100,000. But if we look at now, uh, let's tax effect those two options. Let's look at them on an after-tax basis. We know with the sale, that's $100,000 of capital gain.

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Whereas with that the income over my remaining lifetime for my CRT, That's usually, at best, going to be at least partially taxed as ordinary income. So, the sale, that $100,000, is going to be more on an after-tax basis because of that prep.

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Preferential tax treatment, a benefit, not usually a driver.

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What drives transactions is what we call simplification, I hit on this in the last slide.

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You know, a lot of people, a lot of the sellers who we work with.

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Tell us, you know, I've just gotten to the point in my life where I'm trying to simplify my financial affairs.

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The sale of the income interest, as we've seen, is a way to do that, at least with respect to this trust administration.

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The effective on the closing date, that change of trustee occurs.

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That means the buyer's going to take over the responsibilities, uh, for the trust administration, namely that annual 5227, that annual tax return, and that would include the current year. So, current year and all future years.

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Is going to be responsibility of the buyer. Hear it from a lot of sellers.

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Of course, a lot of sellers just like the liquidity.

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Aspect. They like the flexibility of cash. At the end of the day, what it comes down to is.

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I'd rather have this lump sum of cash then this future income stream.

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The reasons why, as you would imagine, are a that's a very long list. I could sit here until tomorrow and talk about the specific reasons we've heard from sellers as far as what they're going to do with that. A lot of times, it does come down to family.

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They like the idea of retaking control of the assets for heirs, whether it's now or later.

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You know, we always joke, if the kids made the decision.

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We would do a lot more transactions. You know, if my parents have a CRT, there's no direct benefit to me. They take the income, they pass away, everything goes to charity.

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If they sell their income interest, retake control of those assets, and I'm part of their planning, whether now or later on through their through their estate, I'm in line to get something now. So, and that's how a lot of people, particularly as they get older.

 

Are looking at the mortality risk standpoint. You know, I like the idea as a seller.

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I'm realizing that when I pass, everything's going to go to charity, nothing's going to the kids.

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If I sell, retake control of those assets, then I can do gifting, whether it's now or later to my family. And a lot of times, it's, I want to chase this investment or buy a boat.

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Or add on to the house, or whatever. So again, that's a very long list, but what it will often come down to is, I'd just rather have the flexibility of the cash today.

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And then they are sort of the overarching reason and the most common one, I hit on this earlier we hear it.

 

Usually, it's described to us as something along the lines of, the trust just ran its course.

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You know, it worked out, I don't regret setting it up. It was a good decision.

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It worked well for some time. I'm just in a different situation today than when I created the CRT.

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Before we jump in and look at our case study.

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I just want to go through the process.

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The one thing I'll say, well, first. Initially, just have your CRT reviewed. That's always going to be the first step, is understanding well, hopefully after this webinar, you'll understand, okay, here's what I own, here's what I can do with it, what the review will do, obviously, is place that specifically in your own context, in terms of what your interest is worth from a financial standpoint.

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So first, everything's always going to start with education, understanding through a review what your interest is worth, what you can do with it. Now, if a decision is made to proceed.

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The one thing I'll say if you go to our website and look at testimonials from other sellers, this is certainly a theme that you'll see. It's easier than most people think.

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You know, admittedly, this is a niche-y transaction. You know, there's only 90,000 CRTs out there.

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But it's all we do, and we've been doing it for a long time, and we've done a lot of these transactions, thousands.

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And we've gotten the process down. So, one of the things we take pride in is hearing the seller say, well, that was easier than I thought.

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Our closing team will guide the entire process. It's turnkey, meaning we're going to provide all the necessary documentation that's necessary to facilitate the sale.

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But let's kind of go step by step. We had our CRT reviewed, we decided, yeah, I'd like to move forward with the sale.

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We'll talk about what we need to review later, but it's not a lot, and it's certainly not any documentation, so we don't need any trust agreement, anything like that to review the CRT.

 

Once the decision is made to proceed, we would need a copy of the trust agreement and the prior three tax returns, the IRS Form 5227 that that trust files each year.

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We'll review those, make sure there's no barriers to sale and then we'll prepare the sale documentation.

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Both parties will review and sign the documentation. Standard purchase and sale agreement and escrow agreement. The closing takes place via an escrow process at Wells Fargo Bank.

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There's an escrow agent that performs the final purchase price calculation.

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And processes the seller's payment from buyer's escrow account.

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That closing itself, that escrow process typically happens inside of one day, at most two business days.

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Start to finish, two to four weeks is pretty typical the biggest variable is you, is the seller.

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The more quickly the seller's able to review and sign the documentation, the quicker the transaction will go through. Obviously, that is the biggest variable.

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At the end of the day, seller receives cash. Buyer now owns the income interest, and buyer owns the administrative responsibilities moving forward.

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Let's look at an example. So, this is an actual transaction that we recently completed for the McKinney family. Todd and Becky were the parents. They had a CRT.

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Typical creation, and they had created their CRT.

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Todd was an insider at a medical device company that's sold. In connection with the sale, establish a charitable remainder trust. I think he had set it up, maybe.

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In the last 10 years, 2015, 2016, something like that, so it wasn't that old of a CRT.

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But they were still just in a different situation now than when they created it.

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The creation they were focused on deferring the gain. Today, what they were looking for was a couple things with respect to the liquidity. They wanted to do there was an investment that they wanted to do.

And they also wanted to do some gifting to their children.

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We arrange a sale, but the first thing, of course, is we reviewed their trust. We're going to go through here the process of valuing and income interest which is what we'll do in order to establish a benchmark. What we don't want to do is just come back and throw a price. You know, here's what we think we could get.

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What we want to do is arm the potential seller with some benchmarks. And the first benchmark we're going to establish is just a present value analysis of that, the future, expected future income stream.

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It's not a complicated valuation. There's only 3 variables. One of them is fixed, we already know it, it's the payout rate of the trust.

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The other two things that we need to estimate are the duration of the income stream, how long we think it'll last.

And investment return. When we're looking at duration.

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Because most CRTs are tied to people's lifetimes, we're going to be looking at life expectancies, or joint life expectancies.

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In case of like here with a couple, a husband and wife.

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So you can see the three mortality tables that we use up here on the screen.

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What these tables are going to give us different life expectancies.

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And we're going to use those life expectancies to establish our valuation range. So, we can see here for the McKinney’s, who were 68 and 66, they had a joint life expectancy of 23, 26, and 29 years depending on which table we're looking at. So, our expected duration of that income stream, because it's tied to Todd and Becky's lifetime.

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That won't change. I should have mentioned this earlier. The sale, we can't affect the CRT, so if I sell my income interest.

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None of the terms are going to change. The buyer inherits; they step into my shoes as the income beneficiary.

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So, the buyers are going to be looking at my life expectancy.

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Here, we've got an expected duration of 23 to 29 years, depending on which table we're looking at.

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And the second thing, or the second variable we need to estimate, is investment return.

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What we will typically do if we're going to run the analysis, however, the income beneficiary wants us to run it, it's not the value to us, it's the value to the income beneficiary, the potential seller, but by default, what we'll do is we'll peg that investment return.

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To the payout rate of the trust. That makes for a simpler analysis.

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So unless we have a high payout, CRT 9, 10 plus percent we're just going to peg that the investment return to the to the distribution rate. In this case, the McKinney’s CRT had a 6% distribution rate.

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We just assumed it would earn and distribute that 6% each year over the expected duration, their joint life expectancy.

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There's $1,185,000 roughly in the trust, so 6% of that is $71,100.

 

So we're going to assume over their life expectancy, you can see this is taken right out of the review here.

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You can see we have that $1,185,000 earning and distributing 6% each year, and we can see these 3 life expectancies down here. So, depending on which life expectancy we're using.

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We get these three different values. So, this is our valuation range.

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Anywhere from $875,000 to $966,000, Depending on which mortality table.

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You could probably tell if you're familiar with Excel, this is just right out of Excel.

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We will always share a live spreadsheet if the income beneficiary wants to fiddle with the numbers or the assumptions.

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Very easy to confirm these calculations. You can see here, this is just using the NPV function in Excel.

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We're getting that exact same value. We're looking at the longest of those 3 life expectancies here, so that 966 there.

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There's thousands of these calculators online. Here's one here. We've, again, plugged in the same assumptions, same 71.1 per year.

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6%, 29 years, and we're getting, as you can see, to the penny.

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The exact same value. So, what this is telling us is that the right to receive $71,100 per year over the remaining lifetimes of a 68 and 66-year-old is worth about $966,000 in today's dollars. So that's our first benchmark.

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The second benchmark is an IRS benchmark. This is less useful because it's in virtually all cases, it's going to be below even the bottom end of our range that we've just that the shortest life expectancy.

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23 years in this case, but it's nevertheless, or nonetheless, it is another benchmark. So, it's one that we will always share in our review.

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You can see here, this is a snapshot from the software that we use to run these calculations. It's called Crescendo.

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It's the same calculation we would use if we were creating the CRT today.

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To calculate the tax deduction. So, when you created your CRT, you took that tax deduction, whoever gave you that figure, what that deduction was, they were using software, the IRS 75, what's called the 7520 rate, which is an IRS interest rate.

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That's required when running these calculations. And payout rate and trust value.

 

So if we plug these in here, you could see we've plugged in the trust value, the ages, the payout rate.

The software's going to give us two values. The first down here is the IRS value of the remainder interest.

That's the tax deduction if they would have created the CRT today.

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But it's also going to give us the value of the income interest. So that's giving us another benchmark.

And again, you can see here, it's about $850,000, and this is typical. That IRS value is typically going to be below even the bottom end of our present value range that we've established and you could see the McKinney’s were able to sell their income interests for a million dollars.

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And this is a very typical in terms of where we see the pricing. Most often, price is going to come in right around the top end of that.

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Valuation range that we've established. In cases like this, even a little bit above it.

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So, that allows us to place in context, in terms of a from a valuation standpoint.

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What the sale price represents relative to some of these benchmarks.

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We arranged the McKinney sale, as I mentioned here recently. Todd was nice enough to give us a testimonial. That you can see up here on the screen.

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One thing that we also will always want to make sure people know that's available or references, go through the process, and it's like, yeah, this looks interesting, but let me talk to someone besides use here at the experts. I get that.

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So we will always make those references available to prior sellers.

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Yeah, Todd spoke with Wells Fargo as well, so he did his own due diligence.

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He wanted to speak with some others who had gone through the process. I think he spoke with 3 people.

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Who had sold recently just in his due diligence. We always make those available to potential sellers.

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So, we saw that the McKinney’s sold their income interest $4 million, so that there was a buyer willing to pay them a million dollars for their future income stream.

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That's the sale option, that's a million dollars going into the McKinney's bank account, or wherever they had the sale proceeds directed.

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The rollover option first of all is servicing, or it's addressing a different situation. So, let's say that instead of Todd and Becky, they didn't want the million dollars. They didn't know what they would do with it. They didn't want to pay that capital gain.

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They were still good fits for a CRT, just not the one that they had. So in a lot of cases.

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When we look at a rollover, it starts with I have a CRT, Uh, but it's not if I could make some changes to it, I would. In a lot of cases, I wish I could just add my kids as beneficiaries, or maybe a spouse who's not included as an income beneficiary.

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What really happened was we started to get these questions throughout the sort of mid-late 2000s, and eventually arrived at this rollover. So, we can't change the CRT, of course.

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But we know that your income interest, that's a marketable asset. It's got a real-world value to it.

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Once the lawyer said everything looks fine. Why can't we use that then to create a new CRT and monetize that new CRT.

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And that's what the rollover does. Instead of that million dollars going to Todd and Becky personally.

That's going into a new CRT that they've created that has different terms in their current CRT.

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Usually, the key driver here is different income beneficiaries. So the buyer, in this case, was willing to pay a million dollars for that future income stream.

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They don't care who they're buying that from, so they'll pay Todd and Becky a million dollars personally.

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If they create this new CRT for their kids and irrevocably contribute their income interest.

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From that existing CRT to the new CRT, the buyer will pay the new CRT a million dollars. So, the value of that income interest is funding that new CRT. Where it's applicable.

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The process in terms of how it works, we need to create a new CRT, so this is where it's a blank slate. So, what are our goals today, if we want children, grandchildren, a spouse that wasn't on our current CRT. So that we can set up this new optimized CRT that's optimized for our current situation.

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We then fund that CRT with our existing income interest, which sells it. So there's no capital, it's a taxable event, but it's a taxable event to that new CRT, so there's no taxes owed.

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That capital gain just fills up the capital gain tier of the new CRT.

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But accomplishing a very different objective, right? So, when we think about the sale option.

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We've just got a million dollars going from a third party to Todd and Becky, uh, personally. It's cash, they can do whatever they want with.

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With the rollover, still have a third party, still have a sale, still have a million-dollar sale price.

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But those million dollars is now going into the CRT, which, in our example up here on the screen, maybe it has their kids as income beneficiaries.

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I just want to hit the rollover, since we're talking about the sale, it involves a sale.

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That's the rollover, accomplishing a very different set of objectives. So, before we talk about what we need to review with CRT and how that works, let's just hit on some frequently asked questions.

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I've covered a lot of these throughout the presentation so far.

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But I want to hit on these again, just to reiterate some of these answers to some of these questions, which we get very often. How much would I get if I sold?

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The first thing we would say is we'll see here on the next slide. We don't need a lot of information, just 3 things.

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To review your CRT and we'll tell you what you would get if you sold.

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Higher level, most likely you're going to be able to sell that income interest.

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At the value of keeping it sometimes a little bit above.

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What are the tax considerations? Capital gain. We've seen this is a capital transaction.

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What are my responsibilities after the sale? None. We've seen that all of the future administrative responsibility is shifted to the buyer.

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The only responsibility as a seller, if I sell my income interest, the only future responsibility I have is just to make sure it's usually the executor of my estate.

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Someone informs the buyer via CRT experts, they will get in touch with us and let us know that the last income beneficiary has passed.

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It's time to pay out to charity. It's not my responsibility, it's going to be a representative, usually the executive of my estate, but moving forward, I have no future responsibilities, uh, with respect to the CRT.

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Again, very often a reason people choose to sell. How long does it take? We've seen two to four weeks.

Where does closing take place or what are the fees?

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Two fees. There's our fee. Our fee is typically going to be 3%.

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Of not the trust value of the gross sale price. We're paid by the seller.

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For better or worse, think of us like a real estate agent. We broker the sale.

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We're paid by the seller, and our fee is typically going to be 3%. If it's a very small transaction, below $100,000, a very large transaction, usually 5-10 million plus we will fix our fee.

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But for most transactions. we will fix our fee.

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The only other fee is an escrow fee that's split evenly between the buyer and seller, $2,500 split evenly, so $1,250 to the buyer, $1,250 to the seller. Those are the only two fees.

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That are charged in connection with the sale. Where does closing take place? That, as we've talked about, takes place at Wells Fargo under the supervision of an escrow agent.

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Can the buyer change the charitable beneficiary? No. There needs to be mutual agreement in terms of who that charitable beneficiary is, but the buyer has no power ever to change it. You couldn't sell that to the buyer if you wanted to.

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That's only something that the donor of the CRT has the power to do.

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If they do have that power, most owners do.

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But this is not a scenario where if John Doe buys my income interest, he can change the beneficiary five years down the road. He can't do it now, he can't do it in the future.

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Is our reference is available? Yes, we'll connect you with as many prior sellers as you want to speak with. We'll just keep sending them until your due diligence is satisfied.

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So what do we need to review a CRT? So we just need 3 pieces of information. You've probably gathered what these are throughout that particularly that case study, but we need the ages, or nearest ages, or birthdates of any income beneficiaries.

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The payout rate of the CRT, usually a fixed percentage, 5 to 10% usually and the approximate trust value. Doesn't have to be exact, just the approximate trust value.

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With those three pieces of information. We will review the CRT, typically just a couple days later, we'll be back to you with a written review. We're going to go through what your income interest is worth we'll show you those benchmarks.

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Confirm these tax considerations, confirm how the fee schedule works, the closing process.

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And that is in writing. Everything is in writing.

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So not a lot of information to just review the CRT, and then we've, as we talked about earlier, if a decision is made to proceed, at that point, we would need the trust agreement and the prior three tax returns, not your returns, the CRT's tax returns.

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We do not charge for the review so, there's no costs and obligation. We are only paid if a sale is completed we're paid by the seller in escrow.

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You know, one thing that I always try to remember to hit on is just our approach here. We do not have a sales team.

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I describe it as no square pegs and round holes. You know, we learned a long time ago that we can't force people to be in a situation where they would benefit from one of these options. That is what it is. They're going to be a fit or not.

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So, what we focused on is we want to review the trust.

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Make sure that income beneficiary understands, okay, here's what I own.

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Here's what I can do with it, here's what it's worth.

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And if it's a fit, if it's a fit. If it's not a fit, uh, maybe it will be in the future. Now you know.

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So, you can see that the quote from Jim I think he's a last year, seller in 2024, But I always try to put this up on this slide because he makes that important point. I get it.

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We contacted you. You got a letter from us, you don't know us.

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You know, pick up the phone, am I going to get the hardcore press, so to speak?

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It's not how we operate. If you've had your CRT reviewed by us before, you know that. But that is one thing. I can't promise you one of these options is going to be a fit.

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But we can't promise you're going to get an objective and unbiased review that's going to educate you on what you own and what you can do with it.

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