San Jose, CA – (408) 777-0776 – In a prior post, we explored the FLIP-CRUT concept in which a Charitable Remainder Trust starts its life as a Net Income Charitable Remainder Trust, and at the time of a specific “Triggering Event”, converts to a Standard Charitable Remainder Trust with a defined Unitrust or Annuity distribution.
Additionally we discussed various Treasury Department definitions of Triggering Events, that are deemed not under the control of the Trustee or Grantor or any other person.
Among the most popular instances of Triggering Events is the sale of Unmarketable Assets, for instance, the sale of a Residential or Commercial property, closely-held securities or various business holdings that are not publicly traded, and therefore are without any sort of formal marketplace to value and sell.
Looking at Treasury Regulations § 1.664-1(a)(7)(ii), the definition of Unmarketable Assets includes:
Assets that are not cash, cash equivalents, or other assets that can be readily sold or exchanged for cash or cash equivalents. For example, unmarketable assets include real property, closely-held stock, and an unregistered security for which there is no available exemption permitting public sale.
Why this definition is essential when using a FLIP-CRUT to sell appreciated real estate.
A Charitable Remainder Trust is an exceptional way to postpone the tax at the time of sale if you own a piece of investment that has appreciated in value, and selling it outright would cause substantial capital gains.
The IRS will prohibit the deduction due to the Step Transaction Doctrine if you contribute the real property to a Charitable Remainder Trust once an irrevocable commitment to sell exists.
Contributing real property in a Standard Charitable Remainder Trust is also problematic due to its predetermined yearly obligation to pay the income to the Donor.
A Standard Charitable Remainder Trust does not work, if the investment property takes takes a good amount of time to sell (certainly more than a year).
This is why the inclusion by the Treasury Deparment of Real Property as not being readily marketable is essential. It allows you to grant the asset immediately, qualify for the appropriate deductions, and then make the conversion to a Standard Charitable Remainder Trust after there is enough liquidity (post-sale) to accomplish the annual distribution requirements.
The FLIP-CRUT is really the best vehicle when offering for sale appreciated assets that are not readily marketable, like real property.
To learn how you can take advantage of the amazing tax advantages of a FLIP-CRUT Contact a Charitable Giving Attorney at Ainer and Fraker 800-775-7612 right away.