Dinar Exit Strategies: Charitable Lead Trust

[thmgroup]

OK_Tax_Lawyer brought to the forum another great strategy for preserving wealth called the Charitable Lead Trust. See his posts here:

http://www.investorsiraq.com/163762-post9.html

I am also very high on the CRT’s mirror image, the Charitable Lead Trust (CLT), which, when properly structured, can pass enormous wealth to succeeding generations with little or no estate and/or generation skipping transfer tax. Combine the CLT with dynastic planning, and you sow the seeds for the next Vanderbilt fortune.

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.


and here:

http://www.investorsiraq.com/163781-post11.html

Just a quick follow up to my earlier post about the Charitable Lead Trust. The CLT was the technique Jackie Kennedy Onassis used in her will to transfer the bulk of her estate to her children without any estate tax. Only one fly in the ointment – the auction of JFK’s personal effects (like the rocking chair) brought so much into the estate that the funds designated for transfer to the CLT had to go instead to payment of estate tax. Jackie’s will can be found online at:

http://www.doyourownwill.com/onassis.asp

Note: I don’t recommend you do your own will, but you can do "well" while doing "good."

I felt this discussion deserved a thread of its own.

[thmgroup]

Another good flow chart that illustrates how the CLT works may be found here:

http://americanfoundation.org/11turnkey_giftannuity.html#lead

Please note: I know nothing about the organization (American Foundation) and certainly don't mean to imply an endorsement of any kind. I'm simply posting the link above because it clearly spells out this strategy and how it might benefit those with an interest. Anyone with an interest must investigate this approach thoroughly and discuss tax ramifications with a CPA/Tax Attorney to ensure it is appropriate for their individual situation.

[OK_Tax_Lawyer]

Thmgroup,

Thanks for starting this thread. When I get some time I'll put together a brief consumer friendly "nickel tour" of the strategy.

[Realtor]

Thanks a bunch guy's:)

[OK_Tax_Lawyer]

First, as you’ve probably seen before, here is my required disclaimer:

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Whew! Now on to the information.

Charitable lead trusts can be useful income, gift and estate tax planning tools for charitably inclined taxpayers. These trusts are irrevocable (cannot be amended or revoked without a court order) and offer benefits including a possible income tax deduction (see below), warm fuzzy feelings about doing good in the community, an enviable reputation as a local philanthropist, and for many, the most important benefit of removing assets from an estate while providing a future gift for your beneficiaries.

The easiest way to understand a charitable lead trust (CLT) is to compare it to its counterpart, the charitable remainder trusts. Simply stated, in a charitable remainder trust the grantor donates an asset to the trust. The trust pays a distribution, computed according to a pre-set formula, to the grantor (or some other non-charitable beneficiary selected by the grantor). The cash distributions continue for a specified period of time or for the life of the grantor (or other non-charitable beneficiary). At the end of the trust, whatever is left goes to the charity.

Charitable lead trusts are a mirror image of this structure. In a charitable lead trust (also sometimes called a “charitable income trust” or a “front trust”) the grantor donates cash or an income-producing asset. The trust pays a distribution, according to a formula spelled out in the trust, to the charity for a specified period of time. After that period of time the principal of the trust is paid to the non-charitable "remainder beneficiary" designated by the grantor. Typically, the remainder beneficiary is a member of the grantor's family, other than the grantor or grantor’s spouse (think children and grandchildren).

Charitable remainder trusts involve a gift and income tax deduction for the gift to the charity. The deduction is equal to the present value, computed per Internal Revenue Service (IRS) tables, of the charity's future interest. Although there is always a gift tax deduction involved in a charitable lead trust, there may or may not be an income tax deduction. An income tax deduction is available only if the grantor is taxed on the income of the trust (according to the so-called "grantor trust rules") and the distribution to the charity is in the form of a guaranteed annuity interest (fixed dollar amount each year) or a unitrust interest (fixed percentage but varying dollar amount each year). But note, however, if the CLT invests only in tax free investments (like fully exempt municipal bonds) there is no taxable income generated by the CLT. Puerto Rican bonds are fabulous for this, as they have the backing of the United States’ full faith and credit and are non-taxable to every U.S. resident. (Contact me privately if you want a detailed explanation as to why - it would be boring to add the explanation here.)

The annuity and unitrust interests are substantially the same concepts as are involved in the two types of charitable remainder trusts. The gift tax (and income tax, if applicable) deduction is computed based on the present value, again per IRS tables, of the charity's income interest. Investors should note that for any trust (either lead or remainder) established after May 1, 1989 the interest rate used to calculate the present values is adjusted each month. The rate equals 120 percent of the federal midterm rate (the same rate applied to a number of other IRS computations). This rate is published monthly by the IRS. The rate is roughly the guess that theirs makes as to what future rates of return across the board will be for the next 20 or so years. Generally, the lower the rate (usually called the AFR or 7520 rate) the better for CLTs and the higher the AFR the better for remainder trusts.

With a charitable remainder trust, unless the grantor is insurable, the donation to the charity must come at the expense of the heirs. If the principal is going to the charity, then it can't go to the children, too. With a charitable lead trust, if the grantor can afford to give up the income, he or she can pass an income producing (and potentially appreciating) asset on to heirs and simultaneously satisfy charitable desires.

Charitable lead trusts can solve financial planning problems for many individuals and are considered “high octane” planning tools. The use of a CLT should only be undertaken with the advice and assistance of a qualified professional.
Hope this helps.

[thmgroup]

An exceptional post OK_Tax_Lawyer! Your knowledge and advice are invaluable.

[trusty]

I assume the CLT doesn't have the feature of getting the upfront LTCG tax break afforded in the CRT.

Trusty

[OK_Tax_Lawyer]

I assume the CLT doesn't have the feature of getting the upfront LTCG tax break afforded in the CRT.

Trusty

Trusty,

First the usual disclaimer:

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

Actually, a CLT, if classified as a “grantor” trust (meaning the maker of the trust is treated as the owner of it and pays all future taxes it earns), the trust maker can get a deduction, whether of ordinary income or LTCG. The harpoon here is that the future income is taxed to the person who sets up the trust (called the grantor or maker). How great is that: you get to pay the tax, but don’t get the income!!! Please read the previous sentence with the same level of sarcasm that I used in writing it. :)

If the future income is all tax exempt, such as investing only in municipal bonds, then the maker’s income tax liability is not increased because of the CLT. Most CLTs however are not set up as grantor trusts, so most do not give the maker a deduction of any sort. The savings are usually found on the back end when the maker’s children/grandchildren get the trust principal at the end of the CLT with little or not gift or estate tax cost. By the way, current gift and estate tax rates are 46% when a tax is due. Kinda makes income tax – even on ordinary income – look pretty good, huh?

Hope this helps.

[Michelleirs]

Here is a link that has some more information for you to look at. The group I work for audits these trusts and foundations on a daily basis. All I can say is do your homework and hire a good attorney or CPA because the IRS is aware of people trying to avoid taxes by doing this. http://www.irs.gov/businesses/small/article/0,,id=106553,00.html

[thmgroup]

Here is a link that has some more information for you to look at. The group I work for audits these trusts and foundations on a daily basis. All I can say is do your homework and hire a good attorney or CPA because the IRS is aware of people trying to avoid taxes by doing this. http://www.irs.gov/businesses/small/article/0,,id=106553,00.html

Michelle,

Thank you very much for the information. I'm sure I speak on behalf of most here that it is not our intent to cheat Uncle Sam (I have no problem paying my "fair share"). If these are legitimate and legal structures by which one may maximize their philanthropic opportunities, I for one will pursue them. It's an emphasis on "giving back" (to charity) rather than "taking away" (from Uncle Sam), all within limits of course.

[Michelleirs]

Michelle,

Thank you very much for the information. I'm sure I speak on behalf of most here that it is not our intent to cheat Uncle Sam (I have no problem paying my "fair share"). However, if these are legitimate and legal structures by which one may maximize their philanthropic opportunities, I for one will pursue them. It's an emphasis on "giving back" (to charity) rather than "taking away" (from Uncle Sam), all within limits of course.


I never thought anyone was researching this with the intent to cheat Uncle Sam. With that being said, there are a lot of people out there who are. And the IRS plays by the we question and you prove us wrong rules. I just want everyone to be careful and if they are going to do this, do it right and with the help of a lawyer or CPA. The same goes for a foundation. We are in the midst of huge project right now that is nothing but private foundations and they are looking at thousands of them. I am also looking at ways to keep more of my money. But I have determined that I want what money is left when I die to go to my children and not a charity. I will give to charity regularly while I am alive (already do) and make sure my kids are taken care of when I am not. This is a personal decision that each individual will have to make for him or herself. But thank you for sharing all the information that you have. I am sure alot of people will utilize this legal avenue. You and OK are great assets. But I see daily how people screw up and pay for it for years with the IRS. I do not want to see that happen to any of the great people on this forum. Be cautious, do your own research and hire a professional. Best advice I can give on this situation.

[OK_Tax_Lawyer]

I never thought anyone was researching this with the intent to cheat Uncle Sam. With that being said, there are a lot of people out there who are. And the IRS plays by the we question and you prove us wrong rules. I just want everyone to be careful and if they are going to do this, do it right and with the help of a lawyer or CPA. The same goes for a foundation. We are in the midst of huge project right now that is nothing but private foundations and they are looking at thousands of them. I am also looking at ways to keep more of my money. But I have determined that I want what money is left when I die to go to my children and not a charity. I will give to charity regularly while I am alive (already do) and make sure my kids are taken care of when I am not. This is a personal decision that each individual will have to make for him or herself. But thank you for sharing all the information that you have. I am sure alot of people will utilize this legal avenue. You and OK are great assets. But I see daily how people screw up and pay for it for years with the IRS. I do not want to see that happen to any of the great people on this forum. Be cautious, do your own research and hire a professional. Best advice I can give on this situation.

Michelle,

I can’t thank you enough for pointing out some of the abusive tax schemes that can be traps for the unwary.

To the rest of the Forum: I spend a considerable amount of my professional time explaining to clients why they can’t use the ideas they read in the book they bought on “offshore tax havens” or in the blog they saw on why the U.S. is really on the gold standard and that paper money is not legal tender, and other schemes. Believe me, you do not want your file at the IRS to have the term “tax protestor” attached to it! Imagine being drug through a knothole backwards and you get my meaning.

Congress has decided to promote certain social initiatives through the Internal Revenue Code, and legitimate philanthropy is one of those social initiatives. That is why there are such things as Charitable Lead and Remainder Trusts, Private Foundations and Supporting Organizations. Everyone needs to stay on the playing field and no one will get hurt.

It is only when one tries to take an unfair advantage not allowed by existing tax law that you end up in trouble. Look, the dream is too great to risk losing it all by being greedy. Do your planning with a reputable CPA/attorney and live in gratitude for your blessings.

Finally, remember, it is all too easy to lose sight of the fact that life is about way more than money. Financial security is one thing, but have a well rounded life full of love and compassion. Those are riches that cannot be taxed, but which can be inherited by your children’s children. Be a mentor to someone because it is the right thing to do. Enough sermonizing. Have a great day!

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

OK_Tax_Lawyer

[Steverenos]

Quick question - with a reval off on the horizon how much does it cost $$ on average, to establish a CLT or CRT to shelter legally as much as I can for the IRS and live the life I dream. Any help on other info out there would be greatly appreciated.:happy26:

[OK_Tax_Lawyer]

Quick question - with a reval off on the horizon how much does it cost $$ on average, to establish a CLT or CRT to shelter legally as much as I can for the IRS and live the life I dream. Any help on other info out there would be greatly appreciated.:happy26:

Steverenos,

The good life is, IMHO, best brought about by sheltering the dinars in a Roth IRA/Roth 401(k)-based design BEFORE reval. Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) are for what to do AFTER reval takes place and you have potentially already paid income tax on the gain in your dinar portfolio.

A CRT will provide you and other family members (as you choose) with a lifetime income, or a stream of income for a fixed term of years (not exceeding 20 years). You pay income tax on the stream of payments going to you while the CRT is in existence. What you get with a CRT is a tax deduction (limited to between 20% and 50% of your Adjusted Gross Income – depending on the nature of the charity – and carried forward for five additional years). At the end of the CRT, your pre-selected charity receives whatever is left in the CRT. There are complex rules regarding mandatory testing for CRTs and there are also requirements for independent trustees or for independent trust administrators. Fees are several thousand dollars to set one up and most thousands to maintain them (Note: the CRT pays for the ongoing maintenance fees). The CRT can defer your payment of income tax if the dinars you hold after reval are contributed to the CRT directly, but you won’t get the wealth in your hands to spend – only an income stream.

A CLT is the mirror opposite of the CRT and pays an income stream to charity for a pre-determined number of years or for the life of the creator of the CLT. A CLT will allow you to pass substantial amounts of wealth for little to no estate or generation skipping tax, when properly created and maintained. There are equally complex rules for creating and maintaining a CLT as for CRTs, and fees are comparable.

I continue to maintain that a properly designed LLC – Roth IRA/Roth 401(k) customized retirement program, costing less than $1,000 to set up and much less per year to maintain, will save you more in taxes than either a CRT or a CLT, though these may also be of value in the right circumstances.

Hope this helps.

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

[Steverenos]

:confused: OK having said this "The good life is, IMHO, best brought about by sheltering the dinars in a Roth IRA/Roth 401(k)-based design BEFORE reval. Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) are for what to do AFTER reval takes place and you have potentially already paid income tax on the gain in your dinar portfolio."

How do you go about getting your dinar which I have in hand into a Roth IRA/Roth 401(k). I belong to a 401(k) at work but presently do not have an IRA (traditional or Roth):confused:

[OK_Tax_Lawyer]

:confused: OK having said this "The good life is, IMHO, best brought about by sheltering the dinars in a Roth IRA/Roth 401(k)-based design BEFORE reval. Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs) are for what to do AFTER reval takes place and you have potentially already paid income tax on the gain in your dinar portfolio."

How do you go about getting your dinar which I have in hand into a Roth IRA/Roth 401(k). I belong to a 401(k) at work but presently do not have an IRA (traditional or Roth):confused:

Steverenos,

The 401(k) at work will not be suitable for this type of planning. You will need to use a self-directed Roth IRA or Solo Roth 401(k). It is, of course impossible to give you specific advice on a public Forum, such as this, as that would violate professional confidentiality rules.

I am sending you a PM to discuss your issues more fully. Then if you want, you can ask more questions, either privately, or for all to see and benefit from in this Forum.

IRS CIRCULAR 230 DISCLOSURE: Pursuant to recently-enacted U.S. Treasury Department Regulations, attorneys are now required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including any attachments and/or enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

[Steverenos]

OK_Tax_Lawyer thanks for the input

[Waiting in WI]

I would be interested in hearing any information on how to take in hand dinar and put it into a Roth/401K BEFORE any reval/convertibility.

If you are so inclined to share with the group what you learn, count me as interested.:wave:

[OK_Tax_Lawyer]

I would be interested in hearing any information on how to take in hand dinar and put it into a Roth/401K BEFORE any reval/convertibility.

If you are so inclined to share with the group what you learn, count me as interested.:wave:

Waiting,

I have responded to this posting via PM.

[Sk8erDie]

Lawyers are crooks......and those that push charitable trusts are even more crooked. Charity starts at home!!! And to those around you in your sight....Tax Laws giving charity's and lawyers precidence..to charge you a fee and control payment of services is and outrage to the whold idea of charity.....Abolish the gift tax....anything over ten thousand is stupid...when people are in need of cars that are worth fifeteen. Houses that are worth a hundred...tax tax...and more tax...realestate agents car dealorship charges....what a circle jerk system.....Example Vet's charity under investigation...they've all been spending on themselves....I say this with all sincerity people vote with your dollars and don't give it to anyone....the more you don't give controll of your money the less control people have to take it away from you. If everyone revolted, that's a vote in itself. They did it in Boston remember?! Give them teabags from CHINA. as your contribution of tax.

[elelegido111]

Thmgroup,

Thanks for starting this thread. When I get some time I'll put together a brief consumer friendly "nickel tour" of the strategy.

I really think that all members should develop an estate plan that will help you depending on your situation.

One question what other bulettins should we know prior to consulting this issue with an attorne?

[Sk8erDie]

SINCE WHEN DID "LEGAL ENTITIES" BECOME FINANCIAL PLANNERS? DON'T BE CONNED-----SPEAK TO YOUR FINANCIER FOR MONETARY ADVICE---DEVIL IN THE DETAILS----SAVE YOUR LAWYER MONEY FOR WHEN SOMEONE TRY'S TO SUE YOU FRIVILOUSLY....THAT'S ALL THEIR GOOD FOR ANYWAY!!!.....
Got any spare change? Looks like the city of Chicago has about half a million dollars less after it agreed to a tentative settlement of a class-action lawsuit filed on behalf of people arrested or ticketed over the past four years for panhandling. Say what?

http://www.power-of-attorneys.com/laughable_lawsuits.htm

[Scale&Steel]

We got a tax lawyer here??!!

Awsome!! I will have to read over this thread. I will pm you to ask a few questions on your profession if thats ok. I am considering tax law myself...its one of my options. Hopefully you will have time to answer a few questions from a law student?

[Sk8erDie]

Fake lawyer sent to jail. It looks like a California convicted felon, who managed to pose as a lawyer and represent hundreds of clients, has been sent away on an all expenses paid 12 1/2 year trip up the river.

Why ask an attorny for financial advise when you can ask a forex trader for legal advice.