Author: Gabriel

How to Give Away Your Taxes

Post author By Gabriel
Post date December 25, 2001
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How to Give Away Your Taxes

Capturing Social Capital is more than enlightened self-interest; it is a means of asserting control over assets you have spent a lifetime accumulating. When exploring estate planning techniques, normally you must include powers of attorney, wills, trusts, business agreements and the use of gifts. Planned gifting programs are best utilized within a complete estate plan, and offer the donor a great opportunity to give away tax liabilities. After all, the joy of giving allows you the choice of transferring assets to children, charity or Congress. Of the planning tools used, charitable giving may be more powerful than you have imagined, but it has been avoided by too many professional advisors.

What will sponsoring a charity do for you?

It will make your life more interesting, more exciting, more flexible, more fun and more meaningful.

Changes in lifestyle, economy and government programs have greatly influenced trends in modern charitable giving. Typically, the institutional priority today is a more donor driven philanthropy instead of the traditional needs driven approach. In order to compete for limited donor support, charities have to move from a gift getting mentality to a problem solving manner of thinking. Organizations can best accomplish this shift in mind-set by developing partnerships with their donors. Charities with a proactive outlook in their development efforts will be able to better respond to the changes in the gifting environment. This flexible approach allows institutions the continued opportunity to provide improved services and support to their clients.

In order to understand their future partners, todays charities must better understand family dynamics and motivations. Prosperous families recognize that they are in jeopardy and must address those risks to protect both their wealth and the individuals in their family. These risks include a lack of feeling competent, no cohesiveness, too little commitment to something more important than self and guilt about having wealth. Unfortunately, there is a lack of information about property and money management, and nobody is trained to inherit wealth. The solution is to work with charitable groups and family foundations. This mentoring activity allows younger family members to learn how to manage assets, plan and budget before they inherit the bulk of their noncharitable bequests. Besides preserving wealth, the elder generation wants to create a significance that survives them, so gifting programs can create a sense of immortality. Whether or not clients have purely charitable interests, most families have community or social issues that influence their outlook. By establishing a trust or foundation to support these activities, death will not interfere with the transfer of an important value system.

Often gifts are made by charitable bequests, but this may be the worst tool to shift assets, as it creates an obligation in the estate that may come before other necessary distributions. As an alternative, the government recognized two components to a charitable gift in 1969 by dividing the income and remainder interest. Four of these split interest planning tools now have the potential to both give something away and still keep the use of it. Of these, Charitable Remainder Trusts, have recently been popularized as powerful tax reduction techniques. In reality, they allow donors the opportunity to give away assets, retain an income stream, take tax deductions and still retain control over the ultimate disposition of the remainder gift. Besides a need for tax deductions, donors must also have charitable intent and a desire to maintain control. Remainder trusts may guarantee a fixed amount for life or a term of years based on either a fixed annuity calculation or a percentage of the trusts annual value. Of the four types of trusts best known by their acronyms (CRAT, SCRUT, NICRUT, NIMCRUT), the Net Income with Make-Up Charitable Remainder Uni-Trust or spigot trust is the most flexible. Each trust has very different applications, depending on needs for future gifts, flexibility, donor tax deductions, income and control. Charitable Lead or Income Trusts are designed to pass the principal of a gift to heirs after a charity has received an income stream for a period of time. If the asset produces more than the required income payout, all of the future appreciation and the asset itself will pass back to the heirs without further estate tax obligations. These techniques are best understood as enlightened self-interest because both good works and family priorities are promoted.

For donors with purely charitable inclinations, the next three tools address some of the security issues which most concern the older client. While these techniques do not preserve any assets for the family, they are more practical as a means of supporting charitable works and giving final control to the philanthropic institution. Charitable Gift Annuities are programs in which the institution must guarantee a lifetime of income for the donor, but any unused funds revert to the charity at the donors death. This technique is most useful for the very elderly or those with no family wealth to pass along to heirs. Pooled Income Funds, owned and run by the charity, are similar to mutual funds. The institution is then required to pay the donor each years investment proceeds on a proportional basis. Ultimately, the principal amount will pass to the charity and be used at their discretion. Life insurance may also be purchased and gifted to a charity in a direct program that offers a guaranteed benefit for donors with a fixed budget. Charitable gifting is not limited to the ultra-wealthy, as any sized estate plan may benefit from its use. To evaluate the best use of gifts within the estate planning blueprint, experienced legal, tax and financial advisors should be consulted.

Vaughn W. Henry deals primarily with planned giving programs and estate conservation work and is a member of the Central Illinois Chapter of the International Association for Financial Planning.

Failing to stabilize and protect estate values is one of the classic errors in most estate plans. Avoid this situation by consulting your tax, financial and legal advisors.

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‘To give away money is an easy matter, and in anyone’s power. But deciding to who to give, how much, when, for what purpose, and how much is neither in everyone’s power nor an easy matter. Thus, it is that such giving is rare and noble and praiseworthy.’

Thanks!

Case Studies and Articles

Asset Protection and Multi-Generational Estate Planning Tools

Post author By Gabriel
Post date December 25, 2001

Asset Protection and Multi-Generational Estate Planning Tools

Asset Protection and Multi-Generational Estate Planning Tools

Allen (72) and Elizabeth (64) Becker have a successful chain of franchise fast food restaurants. Starting with just one restaurant 40 years ago, they both worked the grill and cash register, even mopping floors at night to save payroll expenses to get their fledgling business off the ground. Now, after years of hard work, the businesses are valued at $6.25 million and Allen is reluctantly selling the stock in his corporation after experiencing some health problems. With no chance to continue operating the business, there was only a choice between selling the stock and paying the capital gains tax, or using a §664 Charitable Remainder Trust to control 100% of the principal. After Allen’s accountant attended a seminar on using a CRT to more efficiently sell closely-held businesses he met with the Becker family and suggested bypassing the capital gains tax “hit”. However, Allen was initially unwilling to give up all the stock and principal to charity, so a strategy was developed to only transfer 80% of his company stock to the charitable remainder unitrust, and sell the remaining 20% in a routine taxable sale. The new buyer acquired 100% of the stock from two separate sellers (i.e., The Becker CRT and Allen Becker individually). This technique allowed Allen and Elizabeth to use the tax deduction of $1,583,350 created by the transfer of $5 million in corporate stock to their CRT and offset most of the tax liability on the $1.25 million taxable sale. The Beckers then took $1.2 million from the taxable sale proceeds and created an Irrevocable Life Insurance Trust (ILIT) to hold a survivor life insurance policy funded with one payment.

To further protect family assets from the heirs’ mismanagement, their attorney drafted the ILIT to make use of the Becker’s Unified Credit and Generation Skipping Tax Exemptions. This protects all of the proceeds from estate taxes for the duration of the trust, probably 100+ years or so. The advantage of designing this “dynasty trust” is that it controls and protects family assets from taxation, litigation, divorce and spendthrifts while still providing the heirs with an opportunity to distribute and spend family wealth. By using the ILIT to purchase an insurance asset, this special trust now holds capital that creates no current income tax liabilities. At the surviving spouse’s death, the family trust will receive $5 million in insurance proceeds, free of both income and estate taxation. With no other assets in the Becker’s ownership, the family escapes all estate taxation and has $5 million in personal financial capital to use inside the family trust. Besides this tax leveraged asset, there will be an additional $8.8 million in social capital inside their charitable trust. Henry & Associates designed the Becker scenario* and compared the two options of (a) selling stock and paying the income tax, reinvesting the balance at 9% or (b) gifting the stock to an IRC §664 Trust and reinvesting all of the sale proceeds in a similar 9% balanced portfolio. At the termination of the CRT, when the surviving spouse (most likely Elizabeth) passes away, the capital inside the trust will pass to a community foundation with Becker heirs sitting on an advisory board to make recommendations about funding charitable programs of interest to their family. Since diabetes and cancer have affected the Becker family over the years, much of the annual support of about $500,000/year, will be used to fund research and education on these two diseases. This family has regained control of their social capital and now has an effective asset protection strategy that will serve the Becker family for many years.

Partial Corporate Stock Sale CRT Strategy (see our web-sitehttp://members.aol.com/CRTrust/CRT.htmlfor other tools)	Sell Asset and Reinvest the Balance (A)	Gift Asset to §664 CRT and Reinvest (B)
Fair Market Value of 80% of Corporate Stock	$5,000,000	$5,000,000
Less: Cost of Sale (legal fees, commissions, appraiser)	83,000	$83,000
Adjusted Sales Price	$4,917,000	$4,917,000
Less: Tax Basis	$25,000
Equals: Gain on Sale	$4,892,000
Less: Capital Gains Tax (federal and state combined)	$1,467,600
Net Amount at Work	$3,449,400	$4,917,000
Annual Return From Asset Reinvested in Balanced Acct @ 9%	$310,446
Avg. Annual Return From Asset in 6.5% CRUT Reinvested @ 9%		$414,370
After-Tax (42%) Avg. Spendable Income	$180,059	$240,335
Statistical Number of Years of Cash Flow for Income Beneficiaries	23	23
Taxes Saved from $1,583,350 Deduction at 42% Marginal Rate		$665,007
Tax Savings and Cash Flow over Joint Life Expectancies	$4,141,350	$6,192,709

Hypothetical evaluationsare provided as a professional courtesy to members of the estate planning community. Call for suggestions.

©Vaughn W. Henry, 1997

Henry & Associates

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Case Studies and Articles

Integrating the Estate Plan – Vaughn W. Henry & Associates

Post author By Gabriel
Post date December 25, 2001

Vaughn W. Henry

One of the most common problems associated with estate and gift planning is the tendency to use a patchwork quilt approach to the process. The resulting jumble of uncoordinated documents, conflicting directions, confused advisors and angry heirs makes it nearly impossible to meet client expectations. Instead, think about ways the estate plan more closely resembles an architectural blueprint. The design of the estate’s “house” should be based on its needs and use, just like a well thought out residence. Will the legal structure stand up to family turmoil and weather legal storms, can it be expanded to accommodate new needs and a changing economic climate, is it large enough and well built enough to protect the estate? You wouldn’t build a house one room at a time. Nor would you withhold a complicated blueprint from the contractor and all of the plumbers, electricians and roofers or the house wouldn’t be livable. The architect explains the master plan and design philosophy to all who contribute to the project and makes sure plumbers don’t cut electric lines and roofers don’t shingle over the fireplace chimney. Why not build an estate plan the same way? Coordinate the plan and make sure all of the pieces fit together without creating new problems. Advisors believe well designed estate plans should meet certain goals, namely:

· Protect the client from financial insecurity in the event of disability, keep options open and improve the management of the estate in the event of the client’s absence.

· Establish priorities, e.g., should heirs be protected from making inexperienced mistakes, where does a charitable bequest fit into the master plan, how important is control vs. a legitimate tax saving strategy?

· Gather legal, personal, tax and financial documents in an organized fashion and make them easily available when needed. Make sure that the tax, legal and financial advisors all work in a cooperative, goal oriented process. Too often, professional advisors compete for client control and may not acknowledge limitations in their own areas of expertise. It’s unreasonable to expect just one advisor to have all the specialized skills needed to complete an estate plan that zeroes out all tax liabilities, so the use of a professional team has become more accepted.

· Avoid family conflict and future ill will. When heirs don’t understand the plan and feel they’ve been mistreated, many opt for legal challenges that tie the estate up in court for years, wasting assets and frustrating family members.

· Minimize expense, delay and publicity of the estate distribution process. While ease of use and logic are important, the default plan of letting the heirs and IRS fight over the assets doesn’t preserve much of a legacy.

· Stipulate who will operate any business and handle family affairs during a disability or after death. If the estate controls stock in a family business, who votes and controls the stock before it is distributed? Will the family business succession plan work if outsiders take over the business? Will the family business have the liquidity to redeem the stock from the estate?

· Eliminate unnecessary income and estate taxes and provide adequate liquidity to pay final expenses and taxes.

· Consider making charitable bequests from assets that produce income in respect of a decedent (IRD), incorporate that language in the Will and make sure beneficiary designations are current and accurate.

· Pass assets to heirs as planned, under conditions that best that meet family needs and their abilities to effectively manage an inheritance.

Complaints about the costs of creating an estate plan are often overblown. Like contractors dealing with change orders and moving misplaced walls when a builder wants to add a closet or move a bathroom, the costs for planning can be controlled by having a master plan and doing the job in a systematic and orderly way. Each piece builds on another and the plan integrates seamlessly; otherwise keep delaying, starting and stopping and redoing it and the costs invariably go way up.

Besides having an estate plan that’s not integrated, too many clients postpone decision-making. The causes for inaction are numerous, but dealing with complex matters, issues of death or disability, frustration and family harmony are cited by many as reasons. Making the problems worse are conflicting suggestions from friends, family and well-intentioned, but poorly trained advisors. So it’s not hard to understand why most people hope that by doing nothing the problem will solve itself. Benign neglect isn’t a successful planning process; it takes a proactive decision to take control of the process. Don’t assume any plan will be perfect and never again need adjustment. Laws change, family needs change and priorities shift, so work towards solving the big problems now and then focus on the little ones later. As Karin Ireland noted — Waiting until everything is perfect before making a move is like waiting to start a trip until all the traffic lights are green.

IRS Information, Regulations and Commentary on Charitable Legal Issues

MAYBE IT’S (NOT JUST) ME – % Vaughn Henry & Associates

Post author By Gabriel
Post date December 25, 2001

MAYBE IT’S (NOT JUST) ME – % Vaughn Henry & Associates

I’m not alone – at least about the dangers of CRSD (Charitable Reverse Split Dollar) and its progeny, what some people are calling charitable split dollar. Here are some recent comments:

Eric Dryburgh: In the highly respected Charitable Gift Planing News, August 1998, Pg. 5 ( 972-386- 8975) the author states,

“There are many variations on the theme, involving insurance trusts, partnerships, and other legal entities. Nevertheless, the basic legal concepts and legal risks are the same.”

“The charity must issue a receipt which accurately reflects what it receives. If the funds are not used to pay the policy premium, the receipt can appropriately reflect an unrestricted gift of cash. If the charity pays the policy premium, however, the receipt should reflect a nondeductible gift.”

NCPG: The Executive Committee of the National Committee on Planned Giving (NCPG) has reviewed a number of these plans and has concluded,

“Life Insurance “Quid Pro Quo” Poses Risks to Donors, Charities” and stated, “Notwithstanding the promoters’ claims to the contrary, NCPG strongly suggests that donors and charities not proceed with the kind of gift arrangement described above without first obtaining a private letter ruling from the IRS on the “quid pro quo” and partial interest issues

Its position paper states “CRSD is a high-risk venture that may expose donors to adverse income tax and transfer tax consequences and may endanger the tax-exempt status of charities that participate.” “Failure to note on receipts a charity’s intention to participate in the CRSD plan could violate both federal tax law and the Model Standards of Practice for the Charitable Gift Planner, adopted by NCPG May 7, 1991. Furthermore, participation by the charity in a CRSD program could put the charity at risk of loss of tax exempt status under the private inurement rules, which the IRS has interpreted broadly, in other contexts, to include contributors to organizations.”

Horowitz Scope Goldis: In “The Myths of Charitable Split Dollar and Charitable Pension”, Journal of the American Society of CLU & ChFC, September 1995, Pg. 98 the authors state on the subject of CRSD:

This is not merely aggressive tax planning, it is egregious and borders on tax fraud…”

Douglas Freeman: Planners should also carefully read the objective, balanced, and scholarly “CHARITABLE REVERSE SPLIT-DOLLAR: BONANZA OR BOOBY TRAP?” by well known and highly respected Los Angeles attorney Douglas K. Freeman in the Journal of Gift Planing, 2^nd quarter, 1998 (317 -269 – 6274). Freeman states in a recent ALI-ABA Course of Study on Charitable Giving Techniques given May 7^th and 8^th in San Francisco,

The reverse split-dollar technique is aggressive planning without substantial reliable authority”, “charitable reverse split-dollar is an attempt to stretch an aggressive program further”. “Charities should never use their influence and reputation to promote a risky program that could influence donors to engage in an arrangement that could result in adverse economic or tax consequences to such donors.”

Scrogin and Flemming: Attorneys John J. Scrogin and Kara Flemming of Roswell, Georgia wrote two excellent and well reasoned discussion articles in the May 1998, Pg. 2 and June issues of Financial Planning Magazine entitled, “A Gift With Strings Attached?” and “One Gift, Many Unhappy Returns” in which the authors state that charitable reverse split dollar plans may suffer the same fate that befell tax shelters in the 1980’s and that donors, charities, tax preparers, and plan promoters are all vulnerable if the IRS cracks down on charitable reverse split dollar plans.

Frank Minton: Frank Minton, the Ethics Chairman of the National Committee on Planed Giving, has stated that,

“Overcharging charities for premiums by using actuarial tables that exaggerate the true cost of life insurance benefit the donor by reducing the amount the donors must pay.”

Michael Huft:In the November 1998 issue of Trusts & Estates, Michael Huft states,

“The problems faced by the charity are potentially more serious than those faced by the donor, for in addition to the possibility that the charity will fail to realize the expected benefits of CRSD, the charity may lose its tax exempt status and its trustees or directors may face liability for breach of fiduciary duty.”

Billitteri and Stehle: In “Brilliant Deduction?”, The Chronicle of Philanthropy, August 13, 1998 the authors quote Marc Owens, director of the I.R.S. Exempt Organizations Division:

“The service is examining whether donors improperly violate federal tax laws by participating in these deals, which currently are being offered by a small number of estate planning companies and their representatives….Charities are supposed to be doing charitable things, not acting as a clearing house for one’s life insurance premiums.”

The service is “actively looking at charitable split-dollar plans in pending cases that include both audits of existing charities and applications by new groups seeking tax-exempt status.”

The article quotes Attorney Douglas K. Freeman as saying

“This thing has some fatal flaws, and the worst part of this is, it puts the charitable institutions at risk.”

Conrad Teitell: Teitell noted in the Oct. -98 edition of his TaxWise Giving that charities and their representatives that give inaccurate information to donors about a gift’s fair market value or incorrectly tell donors that a quid pro quo gift is fully deductible are subject to the abusive tax shelter penalties of IRC Sec. 6700 and 6701. This is the civil penalty imposed on promoters, salespeople, and their assistants who organize or sell a “plan or arrangement” constituting an “abusive” tax shelter.

Abusive is defined as a statement concerning a tax benefit that the person knew – or had reason to know – were false and “gross” valuation overstatements of the property’s value. Both the false or fraudulent statement and the gross valuation overstatement must relate to a material matter. Teitell points out that “a person furnishing a gross valuation overstatement need not have knowledge of the overvaluation to be penalized.” He notes that “an aiding and abetting provision imposes a penalty on persons (such as the president or treasurer of a charity) who help prepare false or fraudulent tax documents that could result in a tax underpayment provided the person knew or had “reason to believe” that the document is material to the tax law. Under the reason-to-believe standard, a person has knowledge if he or she deliberately remains ignorant of what otherwise would have been obvious.” No plan or arrangement is required.” See Exempt Organizations Continuing Professional Education (CPE) Technical Instruction Program for FY 1999. Teitell notes that “It may be a kinder and gentler IRS, but it wasn’t born yesterday.” Will these rules apply to those who make the five key claims listed below? (Is it worth making your client famous to find out?).

The Bottom Line(s) Up Front:

Promoters make five key claims for Charitable Reverse Split Dollar arrangements and their progeny:

(1)Funding of life insurance will be – in essence – income tax deductible.

(2)No party will be subject to income or gift tax liability (and it may also be possible to beat the estate tax).

(3)The donor will be able to use tax deductible dollars to provide for his or her own retirement income.

(4)From the charity’s perspective, this is a “no cost”, “nothing to lose”, “sure thing” with substantial benefits, and

(5)This is a very, very good financial opportunity for the agent who is able to convince the client-donor and the charity to implement the plan and split the insurance.

Let me make my viewpoint very clear on any plan that makes all these promises – no matter what it’s called:

First, in my opinion, in every one of these CRSD or CSD plans I’ve examined, either all – or a significant portion of the check the donor-insured – or his or her corporation – writes – will not be deductible. Deductions already taken in open tax years are likely to be disallowed.

Second, the donor will incur significant income or gift tax liability – or both. There may, therefore, be an understatement of gift as well as income tax with accompanying additional tax, interest, and if the understatement is large enough and substantial authority for the taxpayer’s position can’t be shown, penalty provisions may apply. The person who prepares and signs the donor’s tax return may also likely face legal as well as ethical challenges.

Third, this is not a good deal for the charity. In fact, it may potentially be a New Era level public relations, economic, and legal disaster. If there has been overpayment of premiums and a loss of interest on the “unearned premium account,” the arrangement may be deemed an imprudent course of action by the board of directors and officers of the charity, probably a violation of the charity’s corporate charter, and a risk of its tax exempt status. It is even possible that the charity may be sued by the donor on the grounds that he or she relied on the charity’s counsel checking out the viability of the plan.

Fourth, although the agent who sells this concept may realize a very short term gain, in the long-run, my prediction is that selling this concept will prove very expensive to both the wallet and the reputation of that agent.

Fifth, I realize that attorneys I personally like and respect from prestigeous law firms (e.g. Michael Goldstein of Husch & Eppenberger) have issued favorable opinion letters or spoken on behalf of these arrangements and have voiced their view that these plans are “a planning technique suitable for consideration by informed taxpayers who are not risk adverse.” If they and their law firms are comfortable with these arrangements, fine. As long as the client and the charity are both FULLY appraised of the risks and the discussion is protected by the attorney-client privilege, there is no limit to what tools or techniques may be considered. I’m saying both that the CRSD and CSD plans I’ve examined will not work as commonly described – and potential IRS and/or Congressional over-reaction may result in harming – not only the players – but others (and other planning tools and techniques) as well.

I am conservative – as charged by at least one promoter. As an author and advisor, the last thing I want to do is to make my client – or yours – famous. And it’s also true that I still believe the IRS will not back down on its position in TAM 9604001. I said it when the TAM was first issued in my Miami (Heckerling) Tax Institute address cited below – and I still believe the IRS will win if the underlying principles are tested in the courts. It’s 1999, three years have passed, and there has been no sign the IRS has seen the error of its ways – or will. If anything, the IRS might push Congress to eliminate all its aggrevation over the issue by mandating interest-free loan treatment.

Let me explain why I feel that donors, charities, tax preparers, insurance agents, as well as plan promoters will all loose from the marketing of charitable reverse split dollar and the “I’m different” schemes that essentially make the same promises to the donor:

In examining CRSD and its progeny – just as in any tax transaction – the IRS andthe courts will look beyond the formal written documents – to the substance – the totality and reality – of the transaction as a whole. The IRS and the courts can ignore your words if they don’t comport to your actions and clear intent. Transactions will be characterized for tax purposes according to their overall economic substance rather than the terms used to describe them.

Seemingly unrelated pieces of a puzzle can be re-assembled by the IRS and the courts when it’s clear that the parties intended from the start that each piece was intended to be part of a whole and no part of the puzzle works without the other parts. In my opinion, both the “substance-over-form” doctrine and the “step transaction” doctrine – will be applied here – vigorously!

Charitable Reverse Split Dollar (and the “progeny” I’ve examined to this point) – let’s be honest – is an integrated inter-dependent series of steps attempting to obtain a very good result for the donor and his family with relatively little of the client’s annual “charitable donation” ending up in the hands of the charity.

Advisors should ask themselves how a promoter – with a straight face – can – both verbally and in writing – tout any arrangement that provides “tax sheltered accumulation, creditor protection for family wealth, an option for tax free retirement income, substantial death benefits for the client’s family, the potential for estate tax free life insurance proceeds at no gift or GSTT cost, and plan values that can be owned individually, or by an irrevocable or revocable trust (or an FLP or LLC) and help those who want to make deductible deposits in excess of qualified plan contribution limits – and at the same time say to the IRS (and then possibly under oath in court) that the neither the client nor the client’s family received anything (directly or indirectly) of value

At best, promoters can honestly claim only that the charity has a present expectation of future reward and has not received “an empty bag.”

And (even if true) those claims merely beg the question since the charity was supposed to have ALL of the money the client claimed as a deduction, not merely the dregs of a tattered rag.That the charity may not seriously overpay or that it may eventually really will get some thing out of the deal of some value is irrelevant

The ultimate test – no matter what the plan is called – is simple: One must merely ascertain the answer to these questions:

Is this really a case of detached disinterested generosity – or is it a deal the insured is making with the charity? Do the parties intend that the donor (or the donor’s family or family trust) will receive – directly or indirectly – anything of meaningful economic value from the charity in return for the check the donor wrote? If so, the plan is an invitation to litigation. At best, the deduction must be reduced by the value received.
Is life insurance really needed by the charity, can this need be documented, and if so, is the insurance under the arrangement appropriate in amount and type? If not,the charity faces fame but not fortune. Remember Leimberg’s Third Law of Tax Planning: “The Last Thing You Want to Do Is Make Your Client Famous.
Was the transaction as a totality good for charity? Did the charity pay more than a reasonable amount for what it received? If yes, the president and board of the charity will soon become familiar – on a first name basis – with the state’s Attorney General who is charged with making sure charitable dollars are charitably used (and not abused, misused, or diverted to private noncharitable hands).
What benefits would the donor – insured’s trust have received had the charity not participated? In other words, is there even a small amount in the donor-insured’s trust attributable to the charity’s money? Any wealth in the donor-insured’s trust at any time or manner generated by dollars that were claimed to be the charity’s money is too much.

A rose’s thorn by any other name is still a rose’s thorn. You can’t expect to disguise a pig as a peacock and expect to beat the butcher!

REFERENCES:http://members.aol.com/CRTrust/CSD.html (Vaughn Henry’s CRT Information Web Site

http://members.aol.com/CRTrust/CSD2.html (Vaughn Henry’s CRT Information Web Site

http://www.ncpg.org/charitablepaper.html (NCPG, “Position Paper)

http://home.ease.lsoft.com/archives/aba-ptl.html (ABA searchable discussion archive)

Tax Planning With Life Insurance: 2^nd Edition (800 -950-1210)

http://www.deathandtaxes.com/csd.htm(JJMacNab)

http://www.leimberg.com(Leimberg Associates, Inc. Web Site)

Split Dollar Life Insurance: Rip, Split, or Tear? 31^st Annual Philip E. Heckerling (Miami) Institute on Estate Planning, Chapter 11.

Audio Tape Discussion between Michael Goldstein and Stephan R. Leimberg, Manulife Financial (Available from any Manulife Agent or by calling Advanced Markets at 617 854 4323.)

Case Studies and Articles

Estate planning malpractice issues – Vaughn W. Henry & Associates

Post author By Gabriel
Post date December 25, 2001

Estate planning malpractice issues – Vaughn W. Henry & Associates

Once again estate tax relief is being discussed in Congress, one of the unforeseen consequences is that for many people, already reluctant to solve estate planning problems, this gives them just another excuse to procrastinate. While 95 % of families aren’t faced with a federal estate tax problem, there are still many reasons to design a business succession strategy or complete an estate plan to preserve the security, control and value of their estate. For any family that pays unwanted estate taxes, either their advisors were unskilled or the parents were negligently oblivious to the information provided by numerous print articles, books, news reports, seminars and advice from their professional counselors. What brings this comment to the forefront? Lately I’ve been receiving inquiries from litigation firms seeking referrals to heirs of families that have paid estate taxes and lost businesses or farms. The obvious conclusion is there are disgruntled heirs out there who feel that their cut of the estate was diminished in some way because dad’s advisors somehow “fumbled the ball”. After the dust from the great tobacco lawsuit war settles, the next target may be providers of estate planning solutions that didn’t work as the heirs expected. Who’s on the hook? Attorneys, trust officers, accountants, financial and gift planners and life insurance agents all provide estate-planning advice; a lot has backfired. I expect some are now concerned about heirs looking to correct errors of omission and commission when the tax bill comes due.

Clients create tax neutral living trusts believing they’ve solved tax problems and/or never bother to re-title their assets and properly fund the trust.
Clients maintain joint ownership of significant assets when provisions should be made to preserve the clients’ exemptions (the applicable exclusion is $675,000 per person this year- 2000) or the will passes significant property back to the surviving spouse after ownership was previously split for tax purposes.
Advisors fail to use ways to make gifts to heirs of assets by using tax-free annual exclusions.
Advisors fail to test their client’s tolerance for charity.
Advisors don’t “freeze, squeeze, stuff and spread” assets.
Failure to make use of special tax elections like special use valuations or alternate valuation dates.
Improper beneficiary designations for retirement plans and insurance have come back to haunt blended families when benefits are incorrectly paid to ex-spouses or unforeseen heirs.
Owning insurance that improperly winds up being counted in the taxable estate can expose heirs to unnecessary tax. Incorrect use of irrevocable life insurance trusts.
The estate plan didn’t provide for adequate liquidity and didn’t preserve or stabilize the value of the family business.

perceptions failures
The amazing thing about estate taxes is that so few semi-affluent families take a proactive role to effectively and legally avoid them. Too many wealthy families don’t know that estate taxes are voluntary and, with a suitable plan, may be eliminated. In a study of affluent business owners, the financial survey firm of Russ Prince & Associates, found that only 15.3% of heirs felt that estate taxes were going to be a significant problem in their own family’s business succession plans. After those businesses failed, a follow up study of the same heirs who mistakenly thought taxes weren’t going to be an issue, 97.1% felt the founders’ own negligence in their estate and business planning contributed to the failure. Now there’s an attitude that can be tweaked enough to shift blame to a target more accessible and financially better off than dad. The damages are easy to assess; after all, the tax bill is an obvious place to start. Since tax planners tend not to want to drag out litigation for fear of disrupting an ongoing business that depends on advisors keeping a low profile, they may be real targets of opportunity for unhappy family heirs.

The percentage of families with investable assets in excess of $1 million continues to rise and clusters of wealth exist in places where advisors still fail to provide appropriate advice. What does this mean for planners and their clients? More consideration should be given to creating teams of specialists who can craft a plan that meets the family’s need for liquidity, tax reduction, control and security. Unfortunately, there are professional advisors who don’t feel a responsibility to save taxes or preserve an estate. It’s not uncommon to hear “the kids inherited more than they deserved” or “it’s not my job to cut a tax bill” or “the client never asked me about taxes, they only wanted a simple will”. Many commentators feel that an advisor has an ethical duty to present a range of options to a client that includes tax reduction and a discussion of family values an estate plan propagates. One might contrast this situation with a patient going to a physician about a head cold, and the examining doctor observes a large irregular and discolored mole. The patient didn’t ask the physician about skin cancer, but the doctor has a duty to pursue the diagnosis and treatment, not wave it off and later claim in a malpractice trial that the deceased patient never asked him to do anything about an obvious problem. There should be no more excuses about clients not asking about whether or not tax saving techniques were available, clients generally don’t have enough background to judge what’s appropriate for their situation. After all, they chose an experienced professional advisor instead of a cookie cutter approach that assumes one size fits all; clients should have a family friendly plan crafted to meet their unique needs for flexibility. Professional tax and legal advisors should make a greater effort to educate their clients and help them understand the problem and provide solutions that meet all of their clients’ concerns.

Case Studies and Articles

Life Estates (Estate Planning Tools That Pay Off Now) – Vaughn Henry & Associates

Post author By Gabriel
Post date December 25, 2001

Life Estates (Estate Planning Tools That Pay Off Now) – Vaughn Henry & Associates

Estate Planning Tools That Pay Off Now

Vaughn W. Henry

Did you know, you don’t have to be filthy rich (or even have a taxable estate) to make use of some advanced estate planning maneuvers? One estate-planning tool an older client may use is a “life estate” arrangement with a local charity. This allows the donor to transfer a partial interest in a personal residence, vacation home or farm to a charitable organization and still retain the right to live there for either a stated number of years or through a specified lifetime. The advantage of such a contractual agreement is that the donor does not give up cash, income or lifestyle but still receives a charitable income tax deduction. This has real appeal to a donor whose estate isn’t large enough to be taxed at the federal level, but who still pays income taxes and could make use of the deductions. For those with taxable estates, a bequest that creates a charitable deduction might be helpful, but since most estates aren’t taxed, an income tax deduction from a deferred gift at fair market value is almost always useful.

Keep something while you’re giving it away.

So who might make use of such a life estate?

donors who want to benefit a charitable cause but who are unable to make current cash contributions
donors without heirs or those who don’t plan to pass a family home or farm to heirs
donors who have a close relationship to a charity, especially if the nonprofit has plans to expand physical plant facilities or programs and the real estate fits into their expansion plans
donors who would like for the nonprofit organization to have the property without restrictions or legal battles with uncooperative heirs in the future

What are the down sides to such gifts?

It is an irrevocable gift to charity and if the donor’s financial or health situation changes, that asset is no longer available to convert to cash.
The property becomes hard to sell or lease because the charity owns a remainder interest.
The donor usually is responsible for paying maintenance, taxes and insurance.
The donor may become disabled and be compelled to move into assisted care housing. Without any prior planning, what happens to the property?
The charity has to agree to take the property, no guarantees today in light of zoning, environmental restrictions and management concerns.

A good case study of the technique involves Elizabeth Hopper (72) who owns a retirement home in Florida. The house sits next to a local church she attends when visiting, and she has become active in the congregation. Since her husband passed away three years ago, she makes less use of the residence since it takes too much effort to close up and reopen the house. It was a popular place for her family to gather during the winter holidays, but the $120,000 house is not used enough to fully justify the expense. Possessing a lot of sentimental value, she’s unwilling to give it up completely now. The church would like to acquire the house as a residence for their staff, but is unable to purchase the real estate outright. Since the resort community continues to grow, it looks like the house will probably become more valuable, but her estate is modest and an outright bequest to the church will not solve planning problems. On the other hand, the church endowment committee has offered her a life estate in her residence if she passes the house to their organization at her death. In the meantime, she’s entitled to an income tax deduction of $66,676. The tax deductions would be available for her use over six years and she feels this will free up other income and still allow her the right to continue using the house as she wishes during her lifetime. After Mrs. Hopper passes away, the church acquires the property and may use it as needed without the outlay of additional funds. For some donors, this is as close as it gets to having your cake and eating it too.

For additional information, the web-site http://members.aol.com/crtrust/CRT.htmlhas case studies, software and articles on estate and gift planning tools.

The income tax deduction may need to be offset by depreciation or depletion if the transferred asset’s value would be impacted by a limited useful life. IRC §170(f)(4) and Treas. Reg. §1.170A-12.

Case Studies and Articles

Using an ESOP and a CRT to Preserve Family Wealth

Post author By Gabriel
Post date December 25, 2001

Using an ESOP and a CRT to Preserve Family Wealth

Using an ESOP with a CRT to Preserve Family Wealth

One of the most difficult tasks an entrepreneurial business founder must face is getting out of a family run enterprise, especially when there are no heirs involved in management. To create liquidity, one of the most creative tools available is the “chesop”. Actually, this technique is an employee stock ownership plan (ESOP) with an IRC §664 Trust (CRUT) designed to minimize tax liabilities on the transaction. Whether the non-income producing employer’s stock or, more commonly, the reinvested proceeds under the §1042 roll-over provisions are transferred directly to the CRUT, the effect is the same.

More income
Lower taxes
More assets to heirs
Family Control of “social capital” for community resource

Ken Wiggins (63 widower) owns an automobile dealership and wants to create liquidity and slow down. He has been active as a volunteer at the local hospital since his wife of 38 years passed away, and prefers to continue community service during his retirement. His two daughters are already well provided for through his wife’s trust and he is faced with a business that requires more time and patience than he is willing to provide. His advisors suggested that his management staff and long term employees might be better able to continue operating the dealership profitably, and an ESOP would be an effective tool to transfer the business ownership. In order to qualify for tax deferral, Mr. Wiggins must put at least 30% of his corporate stock into the ESOP, but then he has up to 15 months to reinvest the proceeds into other qualified replacement property and postpone any recognition of his capital gain. While the original basis and tax liability remain, he would have a more diversified portfolio with which he could make cost-effective retirement planning decisions. Knowing full well, on exchanged stock, there will be some stocks that perform poorly, but when sold would trigger the deferred capital gains tax, he needs further alternatives to better manage his $4 million estate. By selecting those under performing assets to be sold, and contributing this stock to a §664 Charitable Remainder Uni-Trust, the repositioned asset is now capable of producing a stream of retirement income. One advantage of this technique is that instead of creating a taxable liability, there is an income tax deduction that may be used to offset the redemption of his other qualified §1042 stocks*. Besides producing more income, the remainder interest serves to create a family philanthropic fund that his daughters and grandchildren will oversee. For further information on this or other case studies, contact our office

ESOP CRT –http://members.aol.com/CRTrust/CRT.html	Sell Business – Pay Tax	ESOP – §664 Trust
Fair Market Value of Stock Contributed to ESOP	$2,500,000	$3,000,000
Less Adjusted Cost Basis	$65,000
Gain on Sale	$2,435,000
Capital Gains Tax at 30% (federal and state)	$730,500
Capital Controlled – Available to be Reinvested @ 8%	$1,769,500	$2,910,000
Annual Return from 8% Income Fund	$141,560
Avg. Annual Return 6% Payout §664 Trust with 8% Portfolio		$186,129
Avg. After-tax Cash Flow From Repositioned Assets	$81,255	$106,838
Taxes Saved – Deduction of $1,031,425 @ 42.6% Tax Rate		$439,387
Total After-tax Cash Flow and Tax Savings After 22 Years	$1,787,620	$2,789,830
After Estate Taxes, Asset Value Owned by Mr. Wiggins’ Heirs	$887,750	$0
Transferred to Wiggins’ Family Fund / Community Foundation	$0	$3,864,949

* The IRS has released a private letter ruling permitting §1042 “ESOP replacement stock” to be transferred to a §664 CRT and avoid immediate capital gains recognition. See PLR 9715040 (January 15, 1997). The seller may reinvest ESOP proceeds in “qualified replacement property” sec. 1042(c)(4) and that includes most publicly traded stock.

Henry & Associates

article

Henry & Associates

Post author By Gabriel
Post date December 24, 2001

Henry & Associates

Malpractice Coverage – IV,

Don’t Leave Home Without It

(fourth in a series on design and implementation issues)

The CRT isnt a suitable tool for all property. While its true that most appreciated assets can be contributed to a §664 charitable remainder trust and sold without incurring an immediate capital gains liability, there are a few problems that will crop up if an advisor isnt careful about what goes in there.

Since my web site offers an on-line CRT income tax deduction calculator, I periodically receive calls from advisors who need to confirm the results of their data entries. One such call was from a brokers assistant needing an answer for her employer who was driving over to present a solution to a prospective client. The donor had a highly appreciated asset and was considering the use of a charitable trust. I was told the assets fair market value was $3 million and that the client was 66 years old and the broker had proposed a one life CRUT. He wanted to know what the highest payout allowed would be for that type of gift. I responded that it depended on the asset, the charity, the date of the gift and the appraisal. The brokers assistant had calculated a $1 million dollar deduction, but she wanted to make sure she hadnt overlooked anything. She further indicated that the asset had a $100,000 basis with significant unrealized gain so the broker was attempting to earn the prospects business by displaying his tax-planning prowess. I asked exactly which asset was to fund the trust and was told it was art. The brokers putative plan was to have the artwork contributed to the CRT and have the charity pay the client 10% of the value annually while the donor continued to display the contributed asset in her home.

Where to start dissecting the problems in this case?

There were so many mistakes and assumptions that had to be corrected that the assistant actually put me on hold in order to intercept the broker before he arrived at the prospects home. The first problem was the contribution of art to a CRT. While tangible property is an allowable contribution [Sec. 170(e)(1)(B)(i)], it wont produce the tax deduction this donor expected. Deductions hinge on related use. For example, art given to a museum or an educational institution with an art history program can be contributed and generate a fair market value (FMV) income tax deduction if it is related to the purpose for which the organization was granted exempt status. A CRT has no related use; contributed assets are there to be sold, not exhibited or used. As a result, this prospects income tax deduction is reduced from fair market value to basis, and any tax deduction remains unavailable to the donor until after the asset is actually sold by the charitable remainder trust. This news further upset the broker, and then when I informed him that there wasnt any way a CRT would have any funds with which to pay out the overgenerous income distribution until the artwork was actually sold, it completely blew his deal out of the water. He had assumed that the donor would be allowed to keep the artwork displayed in her home and that the charitable remainderman would provide the liquidity for the needed income. The donor had little philanthropic motivation and the broker only hoped to manage funds he thought the charity would advance to his clients trust. Clearly, this isnt a CRT headed towards successful implementation.

This remarkably inept CRT proposal was further distinguished by having the dealer who sold the client her artwork serve as the appraiser. Generally, a qualified appraiser is a term that specifically excludes the seller of the donated asset, the donor, the donee, and any related individuals or employees of these disqualified parties. Additionally, there is a requirement for independent authorities to hold themselves out to the public as appraisers in order to complete the IRS form 8283 and substantiate the values claimed for the contributed asset if the value is greater $5,000.[Treas Reg §1.170A-13(c)1]

What assets generally work best inside a charitable remainder trust?

Unrestricted appreciated public stock
Appreciated mutual funds
Cash
Marketable and unencumbered real estate

With special handling, these assets may be manipulated so they can be made to eventually work inside a CRT.

Encumbered real estate
Closely held C corporation stock
Tangible personal property, including art
Restricted (Rule 144) stock
Stock with a tender offer in place
Sole proprietorships – ongoing businesses
S corporation stock

Some gifts are just doomed as possible contributed assets for CRT use, and generally should be avoided.

Property with an existing sales agreement
Installment notes
Stock Options (ISO and NQSO)
Inter-vivos transfers of IRA/Qualified Plan
Inter-vivos transfers of deferred annuities
Inter-vivos transfers savings bonds

Henry & Associates

22 Hyde Park Place, Springfield, IL 62703-5314

217.529.1958 — 217.529.1959 telefax

800.879.2098 toll-free — [email protected]

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Vaughn W. Henry

Henry & Associates

Gift and Estate Planning Services

22 Hyde Park Place

Springfield, IL 62703 USA

Phone: (217) 529-1958 Fax: (217)529-1959

Toll-free: (800) 879-2098

E-mail: [email protected]

CONTACT US FOR A FREE PRELIMINARY CASE STUDY FOR YOUR OWN CRT SCENARIO or try your own at Donor Direct. Please note — there’s much more to estate and charitable planning than simply running software calculations, but it does give you a chance to see how the calculations affect some of the design considerations. This is not “do it yourself brain surgery”. When is a CRUT superior to a CRAT? Which type of CRT is best used with which assets? Although it may be counter-intuitive, sometimes a lower payout CRUT makes more sense and pays more total income to beneficiaries. Why? When to use a CLUT vs. CLAT and the traps in each lead trust. Which tools work best in which planning scenarios? Check with our office for solutions to this alphabet soup of planned giving tools.

New Articles

Malpractice V – Henry & Associates

Post author By Gabriel
Post date December 24, 2001

Malpractice Coverage – V

Don’t Leave Home Without It

(fifth in a series on design and implementation issues)

In this world nothing can be said to be certain, except death and taxes – Benjamin Franklin

in a November 15, 1789 letter to a friend

Sometimes the tax tail wags the dog and poorly trained sales producers, especially in the insurance and financial services area, try to pitch charitable planning as a tax avoidance scheme. Not that the use of a charitable lead or remainder trust, gift annuity or pooled income fund wont have tax benefits. They all do, but estate tax savings usually arent the prime motivator for planning with these complicated tools. According to a recent NCPG Survey of Donors, 77% of CRT creators felt a desire to reduce taxes and 76% had long-range estate or financial planning reasons to create a CRT. However, 91% had a desire to support a charity in its mission. Theres more to marketing these things than as capital gains avoidance trusts.

Attending a one-day workshop on tax planning doesnt make someone an expert on charitable trust design, and sometimes a remainder trust is exactly the wrong thing to offer a client. A §664 CRT practically guaranteed to make clients unhappy would use Mrs. J. D. Bakers plan as a prime example of what not to do. Mrs. Baker, a 90 year-old widow, had a highly appreciated, but low-income earning, commercial building that she plans to leave her church as a bequest in furtherance of its youth programs. Her estate (taxable in 2001) is slightly over $1 million in value, but the majority of it is in the $600,000 structure. In her case, a simple bequest to charity will reduce her estate far below that which will trigger any federal estate tax. Should she live into 2002 or beyond, the rising exclusions will further shelter her estate from federal estate tax liabilities.

Sometimes simple is better than complicated, especially when dealing with unsophisticated clients.

Where this planning first went wrong is that the broker persuaded Mrs. Baker to contribute her property to a NIMCRUT by telling her that shed be receiving 15% of the sales proceeds when the building sold, and then an added 15% every year until she passed away. What wasnt conveyed to Mrs. Baker was that this net income trust pays out the LESSER of net income earned after trust expenses (interest, rents, royalties and dividends less accounting, brokerage and trust fees) or the UNITRUST amount. Most empty buildings have a limited ability to generate large cash rental returns and in todays low interest environment, the probability that Mrs. Baker would receive 15% of $600,000 annually is pretty slim. Unfortunately, she was counting on it, and not meeting client expectations is a sure way to create problems for all of the advisors involved.

Wait, it gets worse.

Convinced by the broker that Mrs. Baker had a large estate tax liability, she was sold a life insurance policy with a $90,000 annual premium. In addition, she funded her ILIT (irrevocable life insurance trust) with premium payments without being told that she was making taxable gifts to her heirs. Where did she expect to generate the money with which to pay the premium? She was told that her NIMCRUT would produce the required distributions. Unfortunately (again), the CRT was designed so it was practically impossible that the required after-tax income could be distributed to meet her needs. More unmanaged client expectations occur when the planner creates expenses that cant be realistically met by using a fixed annuity earning 6% in a 15% NIMCRUT.

Since Mrs. Baker lived mostly on her modest social security and investment income, she might have otherwise been an excellent prospect for a CRT. Too bad she wont be able to fully use her income tax deduction. Nevertheless, the local insurance agent who proposed her estate plan seemed to have more commission needs analysis than client needs analysis in mind in his proposal. A responsible planner would not put the bulk of a 90 year old woman’s estate into an irrevocable trust, making it unavailable for nursing home or medical expenses. In essence, she could have met her initial planning goals of living comfortably, paying no death tax and passing the building to her church without using a CRT. Should a CRT turn out to be an effective planning tool, then a much harder to manage NIMCRUT should not be used if the client absolutely needs to have reliable, steady income. A FLIP-CRUT, or even a standard CRUT if there is an expectation that the asset could be readily sold, would be a more prudent tool than the more restrictive NIMCRUT. Either of those variations of CRUT would have been more satisfactory for an aged donor who absolutely depended on the trust to maintain her financial independence.

In any case, by overselling the fear of paying tax, when the client isnt likely to pay federal tax (given her stated goals), the commercial advisors took advantage of a vulnerable client purely to sell product, rather than to provide solutions. Too bad the products made the problems worse. A good advisor should be able to suggest tools to help a donor preserve personal financial security and still fulfill any clients charitable goals.

Henry & Associates

New Articles

Malpractice Coverage – VI

Post author By Gabriel
Post date December 24, 2001

Malpractice Coverage – VI

Don’t Leave Home Without It

(sixth in a series on design and implementation issues)

One problem encountered in setting up long term charitable trusts is the impatience of income and remainder beneficiaries. All too often, there is an adversarial relationship among the various beneficiaries of split interest trusts, each perceiving their needs as more important than the other, forcing the trustee to weigh competing requests and desires. The nature of a charitable lead or remainder trust often pits trustees interested in growth against those beneficiaries attracted to secure or tax-free income. Just as often, there are trustees who are more concerned about preserving capital while beneficiaries may be adamant about increasing income by investing in more diversified growth assets.

One of the solutions is to spend more time conveying the concept and responsibilities of the parties involved, especially in testamentary plans. In a court case described below, its apparent that the decedent didnt do a very good job briefing his heirs about what he expected to accomplish with his estate plan. A little prior planning would have avoided a lot of discord and the expense of taking the estates trustees to court. It never hurts to have everyone rowing in the same direction when these trusts are put to work.

Estate of Rowe, 712 NYS 2^nd 662 (App. Div. 3^rd Dept., 8/10/2000). Mr. Rowe created an 8% CLAT in 1989 by transferring 30,000 shares of IBM stock worth nearly $3.5 million designed to pay a fixed dollar annuity to charity for 15 years, and then pass the remaining balance to his nieces. Unfortunately, the IBM stock took a hit in the market shortly after the trust was funded and the trust declined in value, but was still required to pay out the same annual charitable distribution. Mr. Rowes bank, acting as trustee, decided to hold the stock with the expectation that it would recover its value. The trustees counted on Big Blue, its history of paying dividends and consistent growth. The bank argued in court that a sale in a down market would recognize a loss in value of the trusts portfolio, while waiting until the stock recovered before it was sold would protect the trust better. The nieces argued that a prudent trustee should have immediately diversified the trust (usually an obligation in a prudent investor state, but remember that a CLT is a tax-paying trust, so this has to be done carefully). As a side note, appreciated stock sold by a CLT would trigger potential capital gains taxes and with the compression of federal trust tax rates, any ordinary income in excess of $8,650 is taxed at 39.6%.

The court ruled in favor of the nieces and ordered the bank trustees to refund its commissions and pay $630,249 in damages. The bank appealed, arguing that the trust still had ten years to operate and any loss of value was only a hypothetical paper loss and no damages could possibly be assessed until the trust terminated and remaining assets passed to the beneficiaries. The trustees lost; although in hindsight, the IBM stock did rebound and the trust would have done quite well if it had been left alone.

The goal of a non-grantor CLT is to fund charitable gifts and pass assets efficiently to heirs, so selecting solid growth assets is critical to success. However, great strategic planning would give full consideration to any assets transferred into an irrevocable charitable trust, and diversification is critical to surviving market volatility.

Good estate planning should address the potential disputes, map the responsibilities for all the parties in the process and avoid costly conflicts. The secret to success is often good communication.