Charitable Remainder Trust again

Financial Planning Tax Strategies
21

Well, again, TIAA and the university aren’t earning their income if they aren’t issuing K-1s. From the IRS webpage on CRTs Charitable Remainder Trusts | Internal Revenue Service (irs.gov)

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To @MarkR’s point, 0.65% of $10MM is $65k a year. Even if the $10MM diminishes by, say, 2.65% a year because the returns are 5%, and the fees and distributions are 7.65%, over the 20 years, the trust will pay about $1MM in fees. And if the returns are 10%, so the trust assets grow, the fees will be about $1.5MM

I will also point out that if you put your entire estate into the CRUT now, you would pay ‘over’ $1MM in gift taxes because you will exceed the lifetime exemption amount. And since the gift to the CRUT reduces your lifetime exemption limit by the amount gifted, even if you don’t put your entire estate into the CRUT, the remaining estate will still be subject to ‘over’ $1MM in estate taxes, unless you spend down the estate down substantially before you die.

So, in total, you’re now looking at over $2MM between taxes and fees.

AJ

22

Thanks, but that is their responsibility, not mine. Their service is part of the deal.

| aj485
July 21 |

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pauleckler:

They have said they will get 1099s but we shall see.

Well, again, TIAA and the university aren’t earning their income if they aren’t issuing K-1s. From the IRS webpage on CRTs Charitable Remainder Trusts | Internal Revenue Service (irs.gov)

image

pauleckler:

Yes, the 0.65 over 20 yrs is quite a chunk.

To @MarkR’s point, 0.65% of $10MM is $65k a year. Even if the $10MM diminishes by, say, 2.65% a year because the returns are 5%, and the fees and distributions are 7.65%, over the 20 years, the trust will pay about $1MM in fees. And if the returns are 10%, so the trust assets grow, the fees will be about $1.5MM

I will also point out that if you put your entire estate into the CRUT now, you would pay ‘over’ $1MM in gift taxes because you will exceed the lifetime exemption amount. And since the gift to the CRUT reduces your lifetime exemption limit by the amount gifted, even if you don’t put your entire estate into the CRUT, the remaining estate will still be subject to ‘over’ $1MM in estate taxes, unless you spend down the estate down substantially before you die.

So, in total, you’re now looking at over $2MM between taxes and fees.

AJ

23

If they told you that the beneficiaries will get 1099s annually, and not K-1s that would be concerning to me. The administrators of a CRUT should know that beneficiaries will get K-1s, and not 1099s.

If what they said was that the beneficiaries will get ‘tax forms’ annually, and didn’t actually say whether the forms were 1099s or K-1s, and you just interpreted ‘tax forms’ to be 1099s, then I wouldn’t be worried.

Then I’m not sure why you said:

because a 0.25% fee would generate $3k in fees on just $1.2MM, and it would appear that you are putting in at least twice that amount, since you are complaining about a $1MM estate tax bill.

AJ

24

Of course the $3k is only an estimate. Used to see if fees are reasonable. Not off by orders of magnitude. And can be a basis for negotiation.

The otherside can claim a need for office space, overhead, and even profit.