          
          
          
          
          Taking Care of the Children:
          
          
               There are solid practical reasons why a CRT should
          have as its beneficiaries a husband and wife, and not
          their children.  These reasons are taxes.
               If the sole individual CRT beneficiary is the
          donor, federal law exempts the entire value of the
          property donated to the CRT from all federal gift and
          estate taxes.  This tax avoidance is a considerable
          advantage, at a time when both these federal taxes are
          assessed at from 37 percent to 60 percent of the total
          value of the estate property.  If the donor's spouse is
          also a beneficiary, the value of that interest is
          reportable as a taxable gift, but it fully qualifies
          for a marital gift tax deduction.
               If the couples' children (or others) are also
          named as beneficiaries, their interests are taxable
          gifts to the extent their interests exceed the
          allowable annual exclusions.  Annual gifts of cash or
          other property worth $10,000 or less, often called
          "annual exclusion gifts," may be made by a donor free
          of any federal gift or estate tax.  In order to qualify
          for this exclusion the gift must be of a "present
          interest" in the property.  Trust gifts do not usually
          qualify unless the trust is specially designed to
          accommodate such "present interest" gifts.
               In addition to federal estate and gift taxes, any
          grandchildren's CRT interest would also be subject to
          the federal "generation skipping" tax of a flat 55
          percent in excess of $1 million in gifts made to them
          during the donor's lifetime.  One bright spot is that
          property given to a qualified charity is fully
          deductible against any gift or estate taxes.
               If one does not include their children as
          beneficiaries of the CRT, how does one "make it up" to
          the kids for their "lost" value of the $1 million
          building that ultimately becomes a gift to the
          charitable remainderman?
               There are several ways to accomplish this worthy
          parental goal, but first let's consider some simple tax
          arithmetic to lay a basis for a suggested solution.
               When a building (or anything else) valued at $1
          million is donated to a CRT, it is received tax free. 
          As we have seen, with a capital gains tax the $1
          million would have been reduced to $731,200 in after
          tax cash.  But $1 million invested by the CRT at an
          expected 8 percent return gives the donor $80,000
          annually in income, rather than $58,496, the annual
          amount of cash after the capital gains tax.  That means
          a net bonanza of $21,504 each year.  And here's where
          the solution to the children's inheritance problem is
          achieved.
                Using $15,000 of the net bonanza money, the
          parents can fund an irrevocable life insurance trust,
          (also called a "wealth replacement" or inheritance
          trust), with their children as named beneficiaries.
               Many couples chose to have their life insurance
          trust purchase a "last to die" or "survivorship" policy
          covering them jointly.  Such a policy is much cheaper
          and is not payable, as indicated, until the last of the
          two parents dies.  Donating a portion of their
          increased income from their CRT to their life insurance
          trust, about $15,000 annually, for ten years will allow
          purchase of a "last to die" whole life policy paying
          about $750,000.  This inheritance is far more than the
          net value that $1 million building  would have produced
          had it not gone to the CRT, but remained a part of the
          parents' estate to be ravaged by federal taxes.
               The $750,000 insurance payout figure is
          approximate because, as in all insurance policies, the
          exact premiums and payout depends on variables
          concerning the person or persons insured.  This figure
          is a quote from an insurance company based on a non-
          smoking 65 year-old couple in good health at the time
          the life insurance is purchased.  Some insurance
          companies will include an optional clause guaranteeing
          that if both insured parents die within four years of
          each other, the company will pay out 222 percent of the
          face value of the policy.  At least one spouse must be
          under age 70 and in good health to obtain this
          lucrative policy rider, but that means double the money
          for your heirs.
               Even if the IRS somehow successfully attacked this
          sum as being taxable as part of the parents' estate,
          and even if the estate was in the 55 percent tax
          bracket, that means on a $1 million policy paying $2.22
          million, after tax proceeds would still equal the $1
          million.  It's worth the gamble and probably more
          likely than winning the state lottery.
               Using the life insurance trust route, everybody
          should be pleased; the parents have added net lifetime
          income from the CRT, the children have an equal or
          greater inheritance, and the charity of your choice
          benefits greatly in the end.
               A word of caution.  Before establishing a life
          insurance trust and having it purchase any life
          insurance policies, all the personal health variables,
          actual premium costs and payouts should be
          realistically assessed and quotations obtained in
          writing from the prospective insurer.  This is not an
          area to be left to hopeful promises from an eager
          insurance salesperson.  A firm administering charitable
          remainder trusts can usually get the best deals on
          wealth replacement life insurance, as they are
          experienced in working with insurance companies who
          understand the purpose of the policy, and in obtaining
          competitive quotations.
               After all, your children deserve the best -
          guaranteed money.
          
          
          
          
