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Fleming Financial Services Blog

At Fleming Financial Services, Inc., our role is to assist our clients in defining and realizing their financial objectives and goals. We work with our clients to implement personalized plans designed for their unique situations. Our areas of concentration are: Retirement planning, Estate and Wealth Transfer strategies, and Business Continuation planning. We emphasize the importance of conducting our business with integrity and professionalism. As a member of PartnersFinancial, an independent national financial services company, we are able to provide access to sophisticated resources for the benefit of our clients. Some of the professionals with our firm are currently registered to conduct business through NFP Securities, Inc. With those additional resources in place, we help facilitate the complex corporate and personal financial decisions our clients must make.

Charitable Remainder Trust-Part 3

Thomas Joseph Thomas Joseph , 9/25/2014
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Fleming Financial Services, PA, Charitable Remainder TrustSuitable clients
  • Individuals who have no children or ultimate beneficiaries
  • Individuals with non-income-producing assets who want lifetime income
  • Individuals with highly appreciated assets that earn a low rate of return (e.g., stock) or cost money to maintain (e.g., land)
  • Individuals with concentrated portfolios who want to diversify
Example #1--CRAT Grantor is an 80-year-old widow with no heirs who owns property with a net fair market value of $1 million, most of which is real estate with a cost basis of $250,000. Grantor is in relatively good health, and is planning to move to an assisted living facility. If grantor sold her property, income tax would be due on the gain at a 15% or 20% tax rate. Instead, grantor creates CRAT, naming her husband's alma mater as charitable beneficiary, as follows:
  •  Trust Term: 20 years
  • Funding Amount: $1 million
  • Growth of Trust: 5.5%
  • Annuity Payout Rate: 5%
  • IRS Discount Rate: 3%
  • Annual Amount to Grantor: $50,000 Paid Quarterly at End of Period
  • Gift to Charity: $1,138,384
  • Income Tax Deduction: $247,794
Example #2--CRUT Grantors are a married couple, both aged 55, with high-paying jobs who are concerned about conservation. Grantors own marketable securities that cost them $50,000 which are currently worth $200,000. They would like to reduce their income taxes and make a gift to a charitable conservation organization. If they sold the securities, income tax would be due on the gain at a 15% or 20% tax rate. They create a CRUT instead, as follows:
  • Trust Term: 20 years
  • Funding Amount: $200,000
  • Growth of Trust: 5.5%
  • Percentage Payout Rate: 5%
  • IRS Discount Rate: 3%
  • Initial Annual Amount to Grantors: $10,000 Paid Semi-Annually
  • Months Until First Payment: 0
  • Gift to Charity: $212,084
  • Income Tax Deduction: $72,267
Advantages CRTs let grantors:
  • Give to charity
  • Receive income for life or term of years
  • Receive immediate income tax deductions
  • Reduce or eliminate capital gains, gift, and estate taxes
  • Enjoy freedom from investment management decisions and duties
  • Transfers are irrevocable
  • Terms of the trust are unchangeable (though assets and charitable beneficiaries may change)
  • Assets that pass to charity do not pass to heirs
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