Advanced CRT DesignReynolds T. Cafferata, Rodriguez, Horii, Choi & Cafferata, LLP

CRTs are back

Easy Assets

Difficult situations

S Corporation

Flavors of CRTs

• Annuity• Unitrust• Net Income Unitrust• Net Income Make Up• Combination of Methods (“Flip Trust”)

What if the donor wants?

• Distributions some years and not others?

Spigot CRT

Unitrust Amount > Net Income

What if Net Income is 0?

What’s Net Income?

• Trust Accounting Income• Cash Accounting• Interest, Dividends, Rents & Royalties• Not Gain from the sale of assets• Entities Create Income with distributions• Not the same as taxable income

Invest to Control Income

Use an entity to control income

Choices of Entities

• Variable Annuity• Partnership• Single Member LLC

Distributions from Entities

• Cash is Income unless:• Liquidation• Redemption• Exceeds 20% of Value of Entity

• Property and other distributions are Principal• California Look-Through Rule

Challenges

• Self-dealing• Constructive Receipt• Creation of Income When Distribution is Desired

S Corporation Stock

S Corporation Basics

• Flow Through Taxation• Shareholder Limits• U.S. Citizens• 501(c)(3) Organizations• Trusts for the above

S Corps and CRTs

• Do not mix• Ineligible Shareholder• UBTI for 501(c)(3) Organizations

S Corp Can Fund a CRT

• S Corp Is Beneficiary of CRT• 20 Year Term Maximum

S Corp

Challenges

• S Corp Must be Beneficiary• Deemed Liquidation

Encumbered Property

Potential Issues

• Bargain Sale • UBTI• Grantor Trust Disqualification

Pay It Off or Transfer It

Aged Debt Avoids UBTI

• Not Acquisition Debt If:• Donor Owned Property 5 Years• Debt on Property for 5 Years• Charity Does Not Assume Debt

Grantor Trust is Not a CRT

• CRT Cannot Be a Grantor Trust• Income owned by donor• Applies if CRT can pay donor’s debts• Recourse Debt is Donor’s Debt• Non-Recourse Debt may be OK

Solutions to Recourse Debt

• Pay it off or Transfer It• Get Lender to Waive Recourse• Keep out of Trust and Indemnify Trust

CRT Money Tree