pigwetParticipantStatus: SpousePosts: 4Joined: 02/10/2017
The in-laws want to donate a portion of their estate to a non-profit organization. The rental house they are contemplating donating is worth around $600k. They don’t want to pay capital gains on it if they sell it.
They are being heavily pushed by a firm to participate in a CRUT/ILIT scheme. This firm has told them about a charitable remainder unitrust (CRUT) option that pays them 5% (or any amount up to 50%) of their trust value per year to live off of as an annuity, and then the remainder gets donated to the non-profit when they die. Then they were told that they can buy a ILIT (Irrevocable Life Insurance Trust) plan (not sure of cost) which pays their heirs at death an amount equal to the amount of money that ends up getting passed to the non-profit. (At least this is my understanding of what happens) This seems too good to be true. They both still work part time (for fun) and earn/spend very little so they certainly don’t need a large tax break.
We kids plan on having a meeting with the in-laws and the planning firm soon.
One of my big questions is, who controls the CRUT investment? The in-laws would ideally want it in something ultra-low risk so that there will certainly be money to pass on. However the pamphlet shows returns of 8% (i.e. not bonds) and shows lots of money per year that they will receive without any math or discussion if the investments/market went down. Is this the type of money that’s used to fund private equity groups or is it traditional market investing? Will they get to choose how the money is invested?
We just got word of all this and are very worried they are on the path of getting totally ripped off.
Any advice?April 22, 2019 at 11:27 am MST #208778LordosisParticipantStatus: PhysicianPosts: 776Joined: 02/11/2019
My medical school sends me stuff in the mail asking for donations to their charity annuity thing that sound like what you describe. It sounds awful so I never looked into it and they go right in the trash.
Here is the post WCI did on them awhile back.
Remember inlaws are not your parents and make sure your trying to help them does not come across as secondary gain. tread lightly.
“Never let your sense of morals prevent you from doing what is right.”CraigyParticipantStatus: SpousePosts: 1856Joined: 09/16/2016
The trustee controls the trust.
Are you talking about a law firm? What kind of firm?
Did the in-laws hire the firm, or did the firm solicit them?
Yeah you can buy insurance to pay whatever death benefit you want. Anybody can buy insurance.
The remainder goes to charity. There’s nothing left for the heirs.
Consult a qualified attorney in your area.
LEVEL 1 WCI FORUM MEMBER.April 22, 2019 at 12:11 pm MST #208799pigwetParticipantStatus: SpousePosts: 4Joined: 02/10/2017
The firm is a “Estate Planning, Asset Protection, and Tax Mitigation” LLC. The in-laws were introduced to them and hired them with a fixed fee to plan their estate (create a living trust, write out advanced directives, etc.).
Now it is evolving into something more complicated; trying to get them to set up this CRUT/ILIT and trying to get them to transfer their money from their IRA retirement accounts into the firm’s affiliate broker in Nevada (no details, again meeting will happen with everyone soon). Very scary stuff!
Here is a link with a graphic showing what I tried to describe above. This isn’t the firm, but it sounds like the same approach for the most part.
And another link I’m reading through.
One paragraph from this site:
“The ILIT is not, by itself, a charitable planning technique. Instead, the ILIT often serves as an attractive addition to charitable planning. The immediate tax deductions and lifetime income typically generated by Charitable Gift Annuities and Charitable Remainder Trusts provide a natural source of funding for this type of life insurance planning. At the same time, these gifts also reduce the remaining estate for heirs, increasing the potential interest in using life insurance as a means of replacing this donated wealth. Other charitable planning techniques, such a gifting a remainder interest in a home or farmland while retaining the life estate, do not generate ongoing income, but do generate an immediate tax deduction. In this case, the donor may consider using the money saved from the reduced tax liability to purchase life insurance.”April 22, 2019 at 2:14 pm MST #208864Larry RagmanParticipantStatus: Other ProfessionalPosts: 489Joined: 08/30/2018
These trust devices and approaches are nominally valid, especially if the in-laws actually want to make the charitable donations. That does not make them a good deal. The two questions I would ask the advisers are: 1) what are the fees and costs; 2) how is this approach better than simply selling the property and either investing the proceeds or splitting them to donate a portion and buying a SPIA with the other.PhysicianOnFIREModeratorStatus: PhysicianPosts: 1504Joined: 01/08/2016
If they simply want to donate the property and aren’t looking for an annuity, they could donate it directly to an organization big enough to handle that sort of transaction (a university, national charity) or donate to a DAF.
WCI once called using a DAF a jerk move (but he has one now). The CRUT is a partial donation, but it can be paired with a DAF as the beneficiary.
40-something anesthesiologist and personal finance blogger @ https://physicianonfire.com [Part of the WCI Network] Find me on Twitter: @physicianonfire
FIRE. Financial Independence. Retire Early.April 23, 2019 at 5:50 am MST #209079CraigyParticipantStatus: SpousePosts: 1856Joined: 09/16/2016
The in-laws might be really disturbed by the prospect of paying tax on the capital gain from the rental house. So should they donate the whole thing to charity? That might legitimately appeal to them. Some people let the tax tail wag the whole dog.
There are many financial advisors that take your entire portfolio under their roof. In fact, this is a big feature for a lot of them – you go from many accounts at several places to one monthly statement from a single brokerage. Obviously they do this for a fee, but some people think it’s wonderful.
It is difficult to tell if there is anything sinister involved here from your post. That said, I’d be leery of any trust or trust strategy prepared and/or pitched by a non-attorney.
LEVEL 1 WCI FORUM MEMBER.April 23, 2019 at 7:56 am MST #209124jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7306Joined: 01/09/2016
Are they HNW with a taxable estate? Or just trying to avoid taxes at the sale of the property? Or really believe strongly in the charity and want to make a significant difference. If they aren’t earning a lot, it is kind of silly to make this donation to get deductions on low-bracket income. I don’t understand why they’re not leaving the property to the kids to get a stepped up basis and sell at no gain. Otherwise, they’re in the 15% LTCG bracket and they could deed the house over 2 years. In addition, buying life insurance at their age is bound to be expensive. An ILIT should be put in place much earlier in life.
Unless they have a fairly complicated situation (and I would presume they don’t if they are just now getting their affairs in order), this sound like overkill – and oversell. I hope you will be able to help them disentangle from this advisory firm. Too many red flags.
Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555