Your client wants to create a “silent trust” with a charity as the sole beneficiary. And he doesn’t want the charity to now know about his plans. He wants the assets to remain in the trust for a period of years before they begin to go to the charity. He doesn’t want to now create a private foundation, supporting organization or donor advised fund, not that those entities would satisfy his objectives anyway. The donor also desires to avoid taxes and reap tax benefits.
This is not an ideal situation for an advisor faced with all these constraints and desires. But, the challenge is to find a way—not to say it can’t be done.
Thinking outside the box on this one, here’s a possible plan:
1. Create a term-of-years (no more than 20 years) net-income-with-no-make-up-5-percent charitable remainder unitrust.
2. Fund the NI-CRUT with growth assets that pay no or little income (or have the trust sell any income-producing assets used to fund the trust and reinvest the proceeds in growth assets).
3. The trustee shouldn’t be required to keep—or invest in—non-income producing assets but can do so in its sole discretion (keeping state-law-diversification-requirements in mind).
4. The charitable remainder organization can be a public charity’s donor advised fund or a private foundation (dependent on the degree of control and the value of the income tax charitable remainder tax deduction that your client wishes).
5. The donor can retain the right to change the charitable remainder organization (limited to another public charity if a maximum deduction is desired).
6. For flexibility, the NI-CRUT can have a FLIP-CRUT provision (flips to a STAN-CRUT on the sale of a non-marketable funding asset—for example, an antique coin).
7. The value of the amount deemed contributed (using an AFR of 2.2 percent) for a 5 percent CRT with a 10-year-term is 60.3 percent of the fair market value of long-term appreciated securities or real property for a remainder to a public charity (60.3 percent of the cost basis for a remainder of that appreciated property to a private foundation remainder organization). For a 15-year term, the percentage in computing the value of the remainder interest is 46.8 percent.
8. Form 5227 is available for public inspection. Thus, give the trust a name and take other steps to avoid shouting out the names of the players.
And that’s the news from Lake Taxbegone.
© Conrad Teitell 2015. This is not intended as legal, tax, financial or other advice. So, check with your adviser on how the rules apply to you.