Charitable Remainder Trust - Wade Ash

1 CHER RYCREEKCORPORATECEN TER4500 CHERRYCREEKDRIVESOUTH#600 DEN VER, CO 80246-1500303. 322. TRUST_____CAUTION:The pur pose s of thi s memor andumare to ass ist the Trust ee ofacha rita bl e remainde r Trust , Trust and transf erri ng ass ets to the Trust ; int aini ng recor ds for the Trust ; requi red tax retur erial pr esent ed ontheWadeAsh WoodsHill & Far ley, ., webs iteis int ended forinf or mationalpurposes only. It is notint ended aspr of essi onalservice advice andshould notbeconstrue d assuc andumis repr esent ative of thetype s of inf or mationwe pr ov ideto clie nt s whe nwe pr epare estat e pl anningdocument s forthe m. However, thi s mat erial maynotbeus ed byeveryattorne y in thefir m in every cas e.

2 Theattorneysat WadeAsh view eac h cas e asuniquely different and,the refor e, theinf or mationwe pr ov ideto ourclie nt s maybesubstantiallydifferent de pe ndingontheclie nt s needsandthenatur e andextent of the ir us e of mat erial contai ne d he rein is at theus er s own risk. Transmissi onof theinf or -mationandmat erial he rein is notint ended to creat e, andreceipt does notconstitute, anagreement tocreat e anattorney-clie nt relationshi p withWadeAsh WoodsHill & Far ley, ., oranymembe rthe reof .This memorandum only providesgeneralinformation, and any specific questions about aparticular Trust must be discussed with the I of this memorandum discusses the documents that are required to create the charitableremainder Trust .

3 The most important of those documents is the Trust agreement, but there are otherdocuments that must be signed and filed. The purposes of a Charitable Remainder Trust often include(1) creating a tax-exempt entity to minimize income tax on gain from sales of appreciated assets,(2) providing an income stream to the non- Charitable beneficiaries during their lifetimes,(3) supporting charities by then passing the Trust property to the Charitable beneficiaries,(4) obtaining a Charitable deduction from income tax for the donor, and (5) removing assets from thedonor s estate. A deduction for the present value of the Remainder interest passing to charity is alsoavailable for gift or estate tax purposes. To obtain these tax advantages, there are a number offormalities that must be observed, both in the creation of the Trust and in the continuingadministration of the II of this memorandum discusses the continuing qualification of the Trust and the filing of anynecessary fiduciary income tax I -- CREATING YOUR Charitable Remainder TRUSTT rust AgreementA separate summary may have been prepared outlining the terms of the particular charitableremainder Trust agreement.

4 In general, the agreement tells the trustee how to administer the donor cannot change the Trust or any of its terms after it is executed and funded. It must beirrevocable, and it must meet strict IRS requirements in order to give the donor the expected , a Charitable Remainder Trust that meets the IRS definition of either a Charitable remainderunitrust or a Charitable Remainder annuity Trust will be recognized as a tax-exempt entity forincome tax purposes. This means that the Trust will not pay income tax on income it receives(including gain on sale of assets), although the noncharitable beneficiaries will usually pay incometax on distributions they receive from the Trust . In addition, transfers to the Trust either duringlifetime or at death will qualify for a gift or estate tax Charitable deduction, with respect to the valueof the Remainder interest passing to charity.

5 Transfers to the Trust during lifetime will result in anincome tax Charitable deduction, also for the value of the Remainder interest passing to unitrusts and annuity trusts provide for payments to one or more noncharitable beneficiaries(often the grantor of the Trust and his or her spouse), for their lives or a fixed number of years. Atthe end of that time, any remaining Trust assets are distributed to one or more charities. An annuitytrust provides for the annual payment of a fixed percentage (not less than 5%) of theinitialfairmarket value of the Trust assets. Additional contributions cannot be made to an annuity Trust . A standard unitrust also provides for annual payments of a fixed percentage (not less than 5%), butthe percentage is applied to the value of the Trust assets as redetermined each year.

6 A net incomewith make-up unitrust is like a standard unitrust in that it provides for payment of a percentage ofthe value of the Trust , as redetermined annually. However, if the actual net income of the Trust fora year is less than the percentage payout, only the net income is paid for that year. In a later year,if the Trust s net income exceeds the percentage payout, then in that year, the excess income is usedto make up the deficit from prior years. Additional contributions can be made to unitrusts, althoughspecial valuation provisions must be included in the Trust agreement. The donor of either an annuitytrust or unitrust may retain the right to change the Charitable beneficiary in his or her most other irrevocable trusts, the donor can be a trustee of a Charitable Remainder trustwithout causing tax problems, but if there are assets in a unitrust that are difficult to value, theagreement mayprovidethat theremust bean independent trusteeto valuethoseassets to determinethe payout amount for each year.

7 Assets that are difficult to value include real property, stock inclosely-held businesses, and other assets other than marketable securities or Trust agreement must also prohibit the payment of death taxes from the Charitable remaindertrust. The noncharitable beneficiaries must pay any death taxes attributable to the Registration StatementBecause the Trust is irrevocable, the trustee is required under Colorado law to register the Trust withthe district court of the county in which the principal place of administration is located. Theprincipal place of administration is where the trustee usuallykeeps the records pertaining to the Trust ,such as the trustee s usual place of business or the trustee s residence. The purposes of the trustregistration statement are to give the current beneficiaries notice of the creation of the Trust , and toestablish the court that has jurisdiction to hear any dispute concerning the Trust .

8 The filing fee is$163. If the Trust is not administered in Colorado, this form will not be used, and the law of the statewhere the trustee is located will control any registration Identification NumberThe Trust must obtain its own federal taxpayer identification number. IRS form SS-4 must be signedbythe trustee, which form can then be filed on-line to obtain the taxpayer identification number fromthe Internal Revenue Service. The IRS will also notify the trustee of the number Trust s taxpayer identification number should be used for any bank accounts or investmentaccounts opened in the name of the Trust , and on income tax returns that are filed for the of Property to the Trust , and Acquisition of Property by the TrustIn general, the donor should use this format for titling assets in the name of the Charitable remaindertrust:The _____ [name of your Trust ], dated propertymaybe transferred to a Charitable remainderannuitytrust after the initial funding.

9 Thus,the following discussion applies primarily to the initial transfer of property to an annuity Trust , andany transfers to a of TrusteesWhen the trustee acquires or sells property in the name of the Trust , the trustee may be asked toprovide evidence of who the trustees are, and who can sign for the Trust . The donor or the trusteemay, of course, provide a copy of the Trust agreement to show that information. However, the donormay not want the trustee to disclose the entire Trust an institution such as a bank or brokerage house will be satisfied with simply receivingcopies of the first page, pertinent pages about trustee powers, and signature pages of the trustagreement, rather than the whole document. Alternatively, a Statement of Authority (discussedbelow for Real Estate) identifying the trustee can be provided to the EstateReal estate can generally be transferred to the Trust by signing and recording a deed.

10 Colorado lawallows real property to be titled in the name of the Trust itself (without naming the trustee in thedeed), as long as a Statement of Authority is also recorded in the real estate records to show theidentity of the trustee(s). If there is a change of trustees, a new Statement of Authority should berecorded to reflect the change before the property is conveyed by the you transfer any real estate to your Trust , there are several special issues that you shouldconsider: If the real estate is subject to any debt (that is, if there is a deed of Trust or mortgageagainst the property), the note and deed of Trust or mortgage documents should bechecked to see whether there are any restrictions on transferring the property. Those4documents may contain a due on transfer clause, allowing the lender to acceleratethe balance due on the loan if you transfer the property.