Dentalpreneur Secrets - Stop Wasting Your Time with Ordinary Advice - Get Lessons from the Super Rich
Dentalpreneur Secrets - Stop Wasting Your Time with Ordinary Advice - Get Lessons from the Super Rich
Many dentalpreneurs are wasting time relaying on ordinary advice from ordinary advisors. I help you implement lessons from the Super Rich so you can reclaim your time and live an amazing life of significance.
Timothy J McNeely CFP CIMA

The Power of Charitable Remainder Trusts

The Power of Charitable Remainder Trusts

4/1/2019 12:00:00 AM   |   Comments: 0   |   Views: 1

Do well by doing good

A growing number of individuals and families want to use some of their wealth to support the causes and organizations they care about most. From helping those less fortunate to facilitating scientific breakthroughs, from providing safe habitats for wildlife to sharing the arts, philanthropy is a core value for many. 

Of course, it’s important to engage in smart philanthropy by using certain tools and strategies that can help you have a much bigger charitable impact than you otherwise could—while simultaneously enhancing your own financial flexibility. 

In short, philanthropic planning can help you—as the old saying goes—“do well by doing good.” 

With that in mind, here’s a closer look at one philanthropic tool that many charitably minded people and families use: charitable remainder trusts. CRTs can be extremely useful and powerful wealth planning tools that allow you to have a major impact on a charity you value while also providing benefits like lower taxes and a regular income stream. 

The ABCs of a CRT

Let’s start with some CRT basics and benefits. 

·   Income stream. You place money or appreciated assets in a CRT, which then provides an annual income stream. You can designate yourself or other people to receive that income. The income stream can last for your life or the lives of the people you designated. You can also have the income stream last for a term of years (within limits). 

·   Tax-deferred growth. The assets in the CRT grow tax-deferred. You are taxed only on the income you receive from the CRT. ? Charitable impact. Once the term of years is up or the last beneficiary dies, the income stream stops and the assets that remain in the trust go to one or more charities you selected.  

·   Tax deduction. When you create and fund the CRT, you get an income tax deduction—the size of which is based on the actuarial value of the remainder that the charity should receive. 

·   Capital gains tax avoidance. You can gift appreciated assets to a CRT without paying capital gains taxes. For example, say you have $1 million worth of stock that you bought 20 years ago for $200,000. You could sell that stock—and pay $160,000 in capital gains taxes (assuming a 20 percent rate)—leaving you with $840,000 to use for your philanthropy. Or you could gift the shares to the CRT and pay no capital gains taxes at all—funding the trust with the full $1 million.  

TYPES OF CRTs 

·   Charitable remainder annuity trusts. 
With a CRAT, you or your designated recipient receive a fixed dollar amount from the trust every year. However, once you set the amount, it cannot be changed. Say, for example, you set the annual amount at $15,000. That is all you can receive every year, even if the assets in the CRAT are growing at a tremendous rate. Additionally, you cannot add assets to a CRAT once it’s set up and funded. 

·   Charitable remainder unitrusts. With a CRUT, you (or the person you designate) receive a percentage of the current value of the assets in the CRUT. Example: You specify that you want to receive six percent of the assets in the trust annually. Every year, the assets are reappraised and you get six percent of that amount. Another difference: You can add more assets to a CRUT.


The Power of Charitable Remainder Trusts

You can use a wide variety of assets to fund a CRT. Some examples include:

·   Cash
·   Stocks and bonds
·   Some types of closely held stock (such as limited liability corporations, but not S corporations)
·   Real estate
·   Artwork and collectibles

Case study

To see the potential power of a CRT, consider this example of funding a CRT with appreciated stock:

An investor in her 40s purchased $600,000 of stock in a new company. After a few years, those shares were worth $1.8 million. If she cashed out, she would have to pay capital gains taxes of 23.8 percent on the $1.2 million of appreciation—leaving her with a tax bill just shy of $300,000.

Instead, she and her advisors set up a CRUT, which enables her to add more assets in the future. The CRUT will last the shorter of 20 years or her lifetime. She will receive 12 percent of the assets each year—or just over $200,000 the first year. Over the course of 20 years, using assumptions of a return of 8 percent annually, she will receive approximately $2.9 million. She will receive a $180,000 charitable deduction.And at the end of the 20-year term, the charitable organization she chose will receive approximately $700,000.

Two caveats

1. The right intention is crucial. If you use a CRT, you must have a genuine charitable intent. The reason: A CRT is an irrevocable trust—once you put assets in a CRT, you cannot get them back.

2. It’s not a personal piggy bank. At least 10 percent of the actuarial value of the CRT must go to charity. A CRT that does not meet the 10 percent remainder requirement is not a qualified charitable remainder trust and will lose its tax benefits.

My name is Tim McNeely, Founder, and CEO of Dentalpreneur Advisors.  I consult with driven dentalpreneurs and select professionals helping you to implement lessons from the Super-Rich so you can reclaim your time and live an amazing life of significance.   I was invited to contribute the foreword to Becoming Seriously Wealthy: How to Harness the Strategies of the Super Rich and Ultra-Wealthy Business Owners. You can connect with me on LinkedIn or visit me at www.timmcneely.com

Disclosure: Tax laws are subject to change, which may affect how any given strategy may perform. Always consult with a tax advisor.

ACKNOWLEDGMENT:  This material is intended for educational purposes and does not constitute a solicitation to purchase a security or advisory services.  Timothy McNeely has retained CEG Worldwide to conduct research and prepare informational materials for his use. This material has been researched and prepared by BSW Inner Circle and its affiliates, CEG Worldwide, LLC and AES Nation, LLC. Copyright 2020 by AES Nation, LLC.  Mr. McNeely is a member of CEG Roundtable and pays an annual fee for these services.   Mr. McNeely is involved in these activities through The LifeStone Companies.  Timothy McNeely is an Investment Advisor Representative of Dynamic Wealth Advisor dba Lifestone Family Office.  All investment advisory services are offered through Dynamic Wealth Advisor.  The LifeStone Companies are not owned or legally affiliated with Dynamic Wealth Advisors and the activities conducted by Mr. McNeely under The LifeStone Companies are considered a separate outside business activity

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