FOR LIVE PROGRAM ONLY Form 5227 Reporting: Mastering Compliance With Charitable Split-Interest Trusts, NIIT Calculations, and More THURSDAY , AUGUST 18, 2016, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Listen on-line via your computer speakers. • • Respond to five prompts during the program plus a single verification code . You will have to write down only the final verification code on the attestation form, which will be emailed to registered attendees. To earn full credit, you must remain connected for the entire program. • WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
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Form 5227 Reporting Aug. 18, 2016 Charles J. McLucas, Jr., CPA, PFS, Founder and CEO Charitable Trust Administrators, San Clemente, Calif. cmclucas@ctai-ca.com Joylyn Ankeney, CPA AKT , Lake Oswego, Ore. jankeney@aktcpa.com
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Form 5227 Reporting: Mastering Compliance With Charitable Split-Interest Trusts, NIIT Calculations, and More Joylyn Ankeney, CPA Charles J. McLucas, Jr., Senior Manager President AKT LLP CPA/PFS/AEP Charitable Trust Administrators, Inc. 5
Split Interest Gift Types Charitable Gift Annuities Charitable Lead Trusts (CLT) Grantor Lead Trust Non-grantor Lead Trust Retained Life Estate Gifts Charitable Remainder Trusts (CRT) Charitable Remainder Unitrust (CRUT) Charitable Remainder Annuity Trust (CRAT) 6
Considerations for Split Interest Gift Planning Annuity or UniTrust Market Performance • Fixed payment amount • What are expected returns • Easy to zero out/ GST AFR • Kids or Grandkids • What does the IRS say we Grantor/ Non Grantor will earn • Income Tax deduction? Asset Issues • Totally out of estate • Taxes due? Now or at Death • Immediate benefits • Liquid? • Estate Tax Wipeout 7
Charitable Gift Annuity A contract in which a donor transfers an asset to charity in exchange for a fixed income stream for life, not to exceed two lives. Donor receives an immediate charitable income tax deduction for the net present value of the calculated remainder interest. Upon termination of the contract (term or death), the charity receives the remainder of the value of the contract. Not a trust – no annual filing requirement. 8
Charitable Lead Trust (CLT) A CLT is the opposite of a CRT: the income stream goes to charity for a term of years and at the end of the trust the remainder is returned to either the granter or a non-granter. • There is no minimum payout requirement. • There is no maximum limitation on the term. • There may or may not be income tax, gift tax and/or estate tax consequences depending on the type of CLT. 9
Non-Grantor CLT • Designed to pass income to a qualified exempt charity for a term of years and then distribute the remainder to family. • Major advantage of the CLT is the ability to leverage the donor's gift exemption. • Donors with larger estates can move major assets through to family with little or no gift or estate tax. • One major contrast to the CRT is that CLT is a taxable trust. • No income tax deduction. 10
Charitable Lead Trust: Non-Grantor Donor Gift of cash, securities, or real estate Charitable Lead Trust Annual payments to charity Remainder to Family Family Designated Charity 11
Grantor CLT A qualifying grantor CLT generally allows the donor to take the net present value of all charitable gifts over the life of the trust and deduct them in the year the trust is created. The donor/grantor will be subject to tax on all of the trust’s income during the charitable term. 12
Charitable Lead Trust: Grantor Gift of cash, securities, or real estate Donor Current income tax deduction Charitable Lead Trust Remainder Annual payments returned to to charity donor Designated Charity 13
Charitable Lead Trust Tax Benefits • Permits transfer of assets to heirs with significantly reduced estate or gift taxes. • Can reduce income taxes. • Flexible planning tool to zero out estate tax. • Can create delayed inheritance/retirement benefit for heirs. 14
Retained Life Estate Gifts A retained life estate gift allows a person to become a donor by irrevocably transferring ownership of a home or farm to a charity while retaining lifetime use of the property. Life estate gifts create a current income tax deduction for individuals who want to make a testamentary gift of real property to charity. 15
Charitable Remainder Trust (CRT) A CRT is a tax-exempt trust that provides for a specified distribution, at least annually, to at least one non-charitable income recipient for a period specified in the trust instrument (not to exceed 20 years), with the remainder interest paid to at least one charitable beneficiary. CRT’s are governed by IRC Section 664. 16
Standard Charitable Remainder Trust Gift of cash, securities, or real estate Donor Charitable Remainder Trust Remainder to charity Income Tax Deduction Plus Annual Income Designated Charity 17
Tax Benefits of a CRT • Donor avoids capital gains taxes on sale of assets contributed to the trust • Donor receives an immediate charitable deduction • The trust income that stays inside the trust is tax exempt • Donor avoids estate taxes on any assets of the CRT that pass to charity 18
CRT’s: Things to bear in mind • Properties subject to an encumbrance: mortgage or a debt can cause the CRT to loose its exempt status, run afoul of self dealing rules or cause an adverse tax consequence • Grantor Trust: trust will not qualify as a CRT if the donor is treated as the owner of the trust. i.e. trust caused to make payments on a debt that is deemed as a debt of the grantor • Self Dealing: transactions that are deemed to benefit the donor or the donor’s family. i.e. sale or exchange of the property by a disqualified person, use of the property by a disqualified person • Prohibited Payments: Payments are limited to the named income beneficiaries per the specified payout (annuity versus unitrust) and to the named charity or charities 19
Funding a CRT with Appreciated Real Estate 20
Appreciated Real Estate • Like the dramatic declines in the financial markets, the value of real estate in across the U.S. has fluctuated over the same time period. 21
Options for Real Estate Owners • Keep the asset • Exchange the asset • Sell the asset • Gift the asset • Other options? 22
Reasons for Selling Real Estate • Capitalize on the appreciation in value. • Tired of property management: ready to receive “ passive income vs. “ active ” from your investment. • Need more income from a low-income producing, yet highly- appreciated property. • Exchanging/trading-up is no longer appealing; want to get out. • Receive an offer they “cannot refuse.” • Diversification 23
Obstacles to Selling Real Estate • Capital Gain Taxes – Federal • 20% on long-term gains due to appreciation. Plus 3.8% • 25% on gains due to straight- line depreciation – State • 1% - 10% • Personal Attachment • Market Conditions 24
Charitable Gifting Strategies • Case Studies 25
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