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I've seen a number of diaries of the past two weeks regarding charitable remainder trusts, particularly as a sinister, tax-evading loophole being exploited by Mitt Romney.
Here's the real deal ...

In a diary tonight (I'm having trouble hyper-linking; the diary is this one:, kossack kavips suggests that Mitt Romney has funneled his billions into a charitable remainder unitrust (CRUT), a sham charitable entity which purportedly really functions as a tax shelter. Kavips alleges that Romney has avoided paying taxes for the last decade plus, implicitly suggesting the CRUT enabled him to do so.

I don't think that's the case. Here's why:

First, by way of background, I am a trust administrator, working exclusively with charitable remainder trusts, with more than a decade of experience. CRUTs were not killed in 1997, as suggested in kavips' post, but they were reformed, with additional language added to the tax code to clarify previously ambiguous areas. Since then, CRUTs have become a popular charitable vehicle that allow donors to make larger gifts to charity than they might otherwise have been able to make, by providing a more secure retirement and some tax benefits. Life income gifts, which includes CRUTs as well as gift annuities and bequests, typically account for 40% of the dollars raised in major fundraising campaigns (such as for colleges/universities, charitable foundations, civic organizations and large national nonprofits). That's why CRUTs are particularly popular with upper middle-class donors who might not be able to afford to make large outright gifts.

But CRUTs only make financial sense if there is philanthropic intent. The benefits simply do not outweigh the costs otherwise.

Here's how a CRUT works: A donor makes a large gift to a charitable remainder unitrust. If the donor uses appreciate securities (such as stocks, bonds or mutual funds), he or she can reduce and defer (but not eliminate) some of the capital gains tax that would otherwise be due on those assets. I'll explain how this works in a minute.

In most iterations, for every year the donor lives, the trust pays him or her a certain percentage of the trust's value. For instance, if a trust pays 7% to the donor and the trust was worth $100,000 on Jan. 1, then the trust would pay the donor $7,000 over the course of the year. Then the trust would re-value itself again the following Jan. 1, and pay 7% of that new value to the donor the following year, etc). When the donor dies, whatever money is left in the trust goes to a predesignated charity.

CRUTs are designed with an understanding that their value may decrease over time. In a sense, they are a hedge: the longer he or she lives, the smaller the gift to charity may be, but the longer the trust will provide for hm/her in retirement. In ideal market environments (read, pre-GWB years), trust would grow by an amount larger than the trust payment due the donor, and so each year the trust was worth more. With the challenging equities and bond markets since 2007, most CRUTs have declined in value each year. That's just the nature of the market environment now. Romney's CRUT allegedly declining from $750,000 to $421,000 is well within the norm. in 2008 alone, most trusts saw their value cut in half.

Kavips also states that when it comes to Romney's CRUT, "Any capital gains are non taxed because of the charit[y']s status." This isn't exactly true, though one could be forgiven for reaching that conclusion. Here's how the tax-benefit component works for CRUTs:

The donor doesn't pay any taxes for the stocks/mutual funds he used to fund the trust. However, while the trust itself is a charitable entity and doesn't pay any taxes, every payment the trust makes to the donor is taxable to the donor. In short, over his/her lifetime, the donor will have either a.) paid the taxes that would otherwise have been due on his donated securities, or b.) died before he could pay all of the taxes due, in which case the charity would receive an even larger residual gift. If Mitt Romney has a CRUT, then he's very likely paying at least some taxes.

On top of all that, there's also a "charitable deduction" benefit associated witrh CRUTs too, but her again, the benefit is limited.

Gifts to CRUTS are irrevocable. Once a gift has been made, the money cannot be returned to the donor, except through the trust payments. Because they're irrevocable, the donor can claim a charitable deduction in the year he makes the gift to his/her CRUT. However, unlike outright gifts, donors can only get a partial charitable deduction for CRUT gifts, equal to the portion of his gift that he won't get any benefit from. For instance, if a donor gives $100,00 to his CRUT, and the financial calculations indicate that the donor would earn in trust payments over his lifetime the equivalent of $60,000 is today's dollars, then the donor could only claim a $40,000 deduction ($100,000 gift, less the $60,000 benefit).

CRUTs are not an efficient vehicle for unscrupulous financiers for generating charitable deductions or for sheltering taxes, or, for that matter, for passing assets on to heirs. They do provide some benefits, but unless one's primary purpose is to give money to charity, there are much better options out there.

Mitt Romney's entire portfolio as a presidential candidate seems built upon cynical schemes and questionable investments. But if he does indeed have a charitable remainder trust, the its true purpose is to give money to the Mormon church, not avoid paying taxes.

Originally posted to bsiii on Sun Nov 04, 2012 at 09:11 PM PST.

Also republished by Community Spotlight.

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Comment Preferences

  •  Thank you for your explanation. Would the same (8+ / 0-)

    apply to a CRUT that was created prior to 1997? I'm not sure what changes were made then.

  •  Thanks for this (30+ / 0-)

    I was about half way through my draft that did the same thing!

    I would, however, quibble with your last statement just a bit.  Mitt's pre-1997 CRUT appears to be a zero'd out CRUT, which would provide that the actuarial value of the remainder passing to charity was zero.  Thus, charity would only receive something if the CRUT outperformed the IRS' assumed rate of return (Section 7520 rate), which as I recall from 1997 was rather high and would be difficult to outperform without a relatively aggressive portfolio (which the CRUT did not have, from press reports).

    The only reason to do a zerod out CRUT was as a captital gains deferral mechanism.  The donor would put a highly appreciated asset in the CRUT and sell it.  The CRUT would not pay tax on the gains, but would keep track of them.  Every distribution to the donor would be capital gain, but they would pay it in small chunks over the life of the trust.  In the mean while, the trust is growing tax free.

    What 1997 did was prevent you from zeroing out the remainder.. it now must be at least 10%, valued actuarially at the date the trust is created.  

  •  Thanks for this helpful clarification (3+ / 0-)
    Recommended by:
    kurt, RudiB, ladybug53

    I was having trouble figuring this stuff out. What do you think about the person who said (as I understood it) that his goal in setting up CRUTs was to make the residual amount that ends up going to the charity very close to zero? That was what made it seem that somehow it must be (in those cases) about the tax shelter, not the charity.

  •  His biggest abuses are elsewhere (11+ / 0-)

    like his IRA

    but the Dude practically has a Doctorate in Tax Avoidance

  •  since as far as I know my (8+ / 0-)

    diary was the first regarding the article on Bloomberg that was posted, I would like to make clear that I was highlighting the quotes from that article- conclusions that the authors made.
    A couple of folks commented on my diary making the point that CRUTs serve a good purpose. I think the main difficulty is the way the article explained the issue. However I would say from the information they provided the advantage of the Romney's 1996 set -up seemed to serve them more than the church.
    The diary that was on the recc'd list that same day had the diarist asking for information because they, like me, knew nothing about CRUTs.
    As happens often enough folks do run off speculating on things w/o reading the link or asking questions. Cynicsm and skeptism regarding Romney and money is hardly a surprise.
    Your input is,for me, much appreciated.

    ..."For beauty," I replied. "And I for truth,-the two are one; We brethren are"... E. Dickinson

    by peagreen on Sun Nov 04, 2012 at 09:50:00 PM PST

    •  Bad social logic (1+ / 0-)
      Recommended by:

      There's is an underlying "logic" to this discussion about CRUT's and tax expenditures that deserves to be explored, if not exploded.

      CRUTs are part of rich people's tax deferral/avoidance strategy.

      CRUTs provide some benefits to society (i.e., lets suppose that they have an ostensible charitable goal in mind).

      Therefore, we ought to support a large measure of income inequality to enable us to have rich philanthropists. What would we do without Walton money support the arts? We should just kill publicly funded Big Bird and depend on Walmart profits and the control of plutocrats to determine the art-scape of our society.

      Private charity confers way too many tax-avoidance perks as it is. I'd say that CRUTs' social usefulness is highly overrated (even if it supports a lot of jobs in the tax-avoidance legal industry).

      "I regret that my poor choice of words caused some people to understand what I was saying." -- Any Republican on any given day

      by RudiB on Mon Nov 05, 2012 at 01:27:21 PM PST

      [ Parent ]

  •  Let's try a hypothetical . . . (7+ / 0-)

    . . . about this.

    Say an individual constructs a CRUT, based on an asset valued for the purpose of the construction at $5. The CRUT then considers that asset at MARKET value, to the tune of $100. The CRUT pays NO common income tax, NO capital gains, and then rebates 10% of the MARKET value to the maker.

    I assume the maker gets to deal with his asset for tax purposes, in the year of creation, at the CLAIMED value. Doesn't this save 95% of the REAL worth from consideration for taxes in that year? If not, why?

    The CRUT then carries the real value of the asset forward, without tax consequences, forever. Isn't this avoidance on it's face? If not, why?

    The CRUT pays, guaranteed, a fixed return, which at 10% is probably more than most investments can produce in the current economy. Yes, the maker pays taxes on that return, but it's essentially a hedge against reality that most folks can't touch, and it's based on a likely misstatement of truth at the beginning. Can this be "fair", in the sense most of us understand?

    The charitable work supported by CRUT systems is a fine thing. Where the original investment is made at face value, and the survival of the asset -- against the annual reduction of payment to the maker -- sounds fine on the face of it, but limiting the ability of the maker to drain the entire value is a sop, so long as the minimal retained value over time is some figure like 10%. The magic of it is in the ability to grossly undervalue the original investment, and then enjoy the proceeds of accounting gimmicks forever. If the minimal value were linked to the inflation of value at the start, to the point of the limit being dependent on the practical investment worth, that might help.

    One more thing. Who manages the CRUT? As it stands, it seems it's simply a piece of paperwork that leaves working control of the asset in the hands of the maker. So what happens if that asset is invested in an operation that then hires the maker, perhaps as a consultant (with the enormous tax advantages such a relationship might offer), and the asset is thereby drained over time in "normal activities"? Incest does get ugly, when it's exposed.

    A CRUT where values are correctly declared, where the vehicle allows the contributor to enjoy the proceeds of investment for life and simply offers some tax advantage for commitment to charitable use, clearly is a good thing. A CRUT may be a useful entity, and one wants to imagine that most instances are benign. One has a hard time sweeping away the natural cynicism that the mendacious among us generates in the rest of us.

    The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

    by semiAdult on Mon Nov 05, 2012 at 12:19:06 AM PST

    •  I also worked for a nonprofit (5+ / 0-)

      and your last paragraph describes ALL of the CRUTs I am familiar with. All of the people I worked with wanted to make a significant gift to charity, but also needed some income from the assets before they died. Their goal was philanthropic, not tax avoidance. As a charity we liked them because we could thank the donors while they are alive and keep them engaged with our work. In the last decade most people would not take 7% from their trust-more like 4-6% because they did want money left for the charity.

      Friends don't let friends vote Republican.

      by OhioNatureMom on Mon Nov 05, 2012 at 07:03:35 AM PST

      [ Parent ]

    •  I don't follow your first few comments. (2+ / 0-)
      Recommended by:
      Kane in CA, VClib

      If I put the asset in at some depressed value, call it 50% of FMV, then the only change is that I get a smaller charitable tax deduction.  Once the discount goes away, I still get 5% of the now-undiscounted value and ultimately get no real benefit or arbitrage from the initial discount.

      re: management of the CRUT: there may have to be a third-party trustee.  In any event, a CRUT is a "private foundation" for excise tax purposes, meaning that self-dealing (precisely the sort of arrangement you contemplate w/ hiring the maker) rules apply and large excise taxes applied if there are any shenanigans.

      •  I'm just making assumptions . . . (0+ / 0-)

        . . . early on that seem reasonable, given the facts as they seem to be. If the asset can be given up to the CRUT for essentially zero (or some very low claim), and then valued at a market level, the value of the asset could essentially be carried along by the maker, tax free, until used, and then only taxed on the used portion. Which is tax avoidance of the finest kind. Consider any option where the asset might be consumed directly by the holder: tax most assuredly would become due. And the "self dealing" option exists in a real world where forms are approved so long as the numbers are consistent, and the very idea of a vigilant agency paying attention seems ludicrous.

        OK, I admit it, I'm a cynical sort. And I see how the changes to the law would reduce the opportunity for such gamesmanship, but still the "old rules" would allow Willard to have carried along without disruption after the change. One, as a cynic, suspects that this sort of bookkeeping chicanery is exactly the underlying reason for the abject denial to produce the returns.

        The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

        by semiAdult on Mon Nov 05, 2012 at 11:24:03 AM PST

        [ Parent ]

        •  The grantor (or "maker") is taxed on income (1+ / 0-)
          Recommended by:

          in the CRUT when the CRUT makes distributions.  Say you give $100 of stock w/ a basis of $50 to the CRUT, and it'll make 5 annual distributions of 10% of the trust value each year.  You give the stock to the CRUT, it sells the stock for a $50 capital gain and holds the cash. It has set up an internal accounting reservoir for the $50 of capital gains, and next year, it distributes $10 back to you (10% x $100), and you report $10 of capital gains to the IRS.  The following year, it distributes $9 back to you, and you report $9 of capital gains.  Next year, it sends $8.10 back to you, and you report $8.10 in capital gains, and so on until all $50 of capital gains come back to you, at which point any distributions are non-taxable.  

          So you're getting taxed, and it has to do w/ when the CRUT sells the asset and when you get the distribution, not when you "use" the asset.

          •  I am not an accountant, and . . . (1+ / 0-)
            Recommended by:

            ... I don't pretend any technical vocabulary. Allow me the convenience of understanding "use" as a distribution liable for tax.

            I agree with your notion of the flow of assets for the purpose of tax, which as you describe it is exactly the intention of CRUTs. That's not at issue for me. What I DO see as the route to evil (or at least the former route) is the ability to hold back the tax consequences, and in fact to put assets out of tax reach, by an artificial valuation at the start. In a way, it's buying an annuity on the cheap.

            At the level of finance such things are done, and to the mindset that measures only in dollars, gaining a 10% advantage is a huge thing, even if over time that advantage is eliminated. Seems to me that's worth some understanding.

            I might add that none of my speculations should imply that the huge majority of CRUTs are suspect. They are not. It's just that the rules of the game, get gamed. When there's a ton of money on (or under) some table, there surely is a mindset that works to find whatever "interpretations" of law/regulation might be used.

            The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

            by semiAdult on Mon Nov 05, 2012 at 11:55:00 AM PST

            [ Parent ]

            •  Duty of consistency (1+ / 0-)
              Recommended by:

              If I understand your concern, the issue would be that we put assets into the CRUT at a discounted value, but when we take them out of the CRUT they would come out at full value when the assets are revalued for purposes of determining the unitrust amount.    I think there are three legal reasons why this would be hard to do and two economic reasons why you wouldn't want to.

              1.  The Code imposes a duty of consistency, so I think that they would be hard pressed to use a different value for going in  and coming out.  They would need to show a fairly signficant change in circumstances to justify a change in the valuation.  Which leads me to ....

              2. Valuation.  The IRS requires a written professional appraisal on these things and could completely disallow the deduction on the front end and/or disqsualify the CRUTs tax exempt statuts if appraisals aren't right.  Now I admit that appraisals have a range to them, but I do think you would be hard pressed to get a signficant change in the appraisal barring a change in circumstances that really did change value (how much of course would be open to interpretation.)   CRUTS are also required to have a correction clause, so if the assets are valued impropertly and it is later fixed, you have to get the unitrust amoutn back with interest. Which leds me to...

              3.  Discounts.  To do this, you would need to have property that would be eligible for discounting.  Many of the types of property that generate discounts are inapprorpiate for a CRUT for a variety of reasons.  The most signficant reason is that a CRUT cannot have "unrealted trade or business income" which generally includes all S Corps, all active partnership income, and alot of passive partnership income that is financed by debt.  In addition, some of the private foundation excise tax rules mentioned by Johnny make it very difficut (not impossible but very difficult) to place family entities into a CRUT.  My experience is that it is usually publicly traded stock or real estate, which is not as susceptible to discounting.

              4.   Economically, first, it would depress the up front charitable deduction because the amount of the deduction is based upon the discounted value of the assets going in.  If the CRUT is a play to get an upfront deduction, then the issue is usually overvaluation, not under valuation.

              5.  Economically, second, if the CRUTS is gain deferral mechanism, the play is to leave the assets in the CRUT as long as possible to that they grow tax free and so the donor can get the time value of money on the deferral of the cap gains tax.  Thus,using a non-discounted value on the way out would accelerate the assets coming out of a tax free account, contrary to the original timing play.  The only reason why you would do that would be to try to force out assets that you weren't going to get at the end - this wouldn't be an issue with a pre 1997 zero out crut because you were always going to get it back.  Now with a 10% remainder, the amount on the table is minimal and the liklihood is the time value play is just as valuable.

              •  Your logic is impeccable. . . (0+ / 0-)

                . . . so long as your underlying assumption is that the CRUT would be honestly formed for charitable purpose. It still seems to me that if purpose leans towards less honorable intent, this is precisely the sort of complicated legal thicket that Willard and his ilk love to hide in. There's a reason they changed the rules, and it wasn't to improve the honesty of honest people.

                The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

                by semiAdult on Mon Nov 05, 2012 at 06:25:42 PM PST

                [ Parent ]

                •  well, i guess we are the last defense (1+ / 0-)
                  Recommended by:

                  I told my clients that charitable planning was for the charitable, because ultimately you have to give money to charity.  I can do it in a tax efficient manner, but if you don't mean to actually benefit charity, then I have other tools in the tool box for you.

                  •  Remember . . . (0+ / 0-)

                    Just because I have a cynical side does not mean I like it. This whole effort has been to try to expose the sort of tricks that can get played. Personally I wish the whole thing was simpler, to the point that rules would fit on a small piece of paper and everybody could understand them without assistance.

                    The furnace of Affliction produces Refinement, in States as well as Individuals. John Adams, 1776.

                    by semiAdult on Tue Nov 06, 2012 at 12:15:30 AM PST

                    [ Parent ]

  •  Based on your description, it seems to me (5+ / 0-)

    that CRUTS can easily be abused. What is to prevent collusion between the church and the donor on determining the value of the assets given? And what is to prevent collusion between the church and the donor on determining the value of the assets returned each year?

    And, furthermore, why are gifts to churches given tax-free status? What ever happened to the wall between church and state? Giving religions such status is giving the state a role in their creation and survival. Let God to God's work. If he wants a church to be created or to survive then he will provide the capital necessary to the tasks. Otherwise my tax dollars are going to help religions thrive.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Mon Nov 05, 2012 at 02:35:16 AM PST

    •  If every tax loophole and shelter (3+ / 0-)

      Romney abused was removed, there would be no tax loopholes and shelters. And if this was done retroactively, the economy might never have crashed.

    •  The donee has nothing to do with it (1+ / 0-)
      Recommended by:

      The remainder beneficiary (the charity) does not necessarily have anything to do with the trust administration until the death of the initial beneficiary (typically the donor). No collusion is necessary. Often the donor will act as trustee. I'm sure it happens, but for the most part, these trusts are made up of marketable securities, and there is little reason to artificially manipulate the value of the assets after the initial creation of the trust.  

      •  Agreed (0+ / 0-)

        The Trustee can be the donor or a third party.  The charity does not need to consent to the creation of the trust, they don't sign it or otherwise need to know.  Often they don't for a while, depending upon the state law regarding notification.

  •  People here slamming Romney - (7+ / 0-)

    and I'm no fan, BTW - for a $1 million investment out of a $250 BILLION fortune, and using it to claim he paid zero in taxes for a decade, is a despicable distortion worthy of Fox News.

  •  Perhaps the devil is in the details (3+ / 0-)
    Recommended by:
    notagain, RudiB, blueoasis

    'cuz when the beneficiaries of this is a hatemongering organization like the Mormon Church, I'd consider the whole kit and kadoodle to be evil.

  •  I'm glad this hit Community Spotlight. (5+ / 0-)

    It's fairly complex info and you presented it well. I worked as an investment portfolio manager for 12 years. Many accounts I worked with were charitable trusts of various kinds. Still, my focus was on the investments rather than the document, so I'm glad you were able to clarify some of these points. Thanks.

  •  I'm a legal secretary working in estate planning (11+ / 0-)

    My first reaction to this story was along the lines of "What's all the fuss about?"  I've prepared several CRUTs (all post-1997) and was thoroughly confused by the reaction to this story.

    Thank you!

    The sun shines on a dog's ass every once in a while, so I guess it's my turn. --Capt. Phil Harris (The Deadliest Catch)

    by Laiane on Mon Nov 05, 2012 at 05:06:58 AM PST

    •  General lack of basic financial education. (5+ / 0-)

      Of course, when you operate without the knowledge of how to preserve wealth, you don't generally end up with any.

      Wealth itself is not evil, and can be used to do a lot of good.

      I'm in the same line of work and am a big fan of protecting and planning as a way to make strong families.  Being nice helps, too.

      •  Protecting and planning (1+ / 0-)
        Recommended by:

        as a way to make the wealthy stronger. Okay. How does this help make anyone who is not wealthy into a "strong family"?

        •  I don't care about help for the already wealthy. (5+ / 0-)
          Recommended by:
          RudiB, lineatus, VClib, SeekCa, Laiane

          Many of them don't need anything from the rest of society but cameras and mirrors and shortcuts.

          I do care about the rest of us who are being sucked dry and can't protect ourelves because we founder financially.  Anyone who is not wealthy can and should protect and plan to avoid catastrophe.

          Some of the things that seem to be important to prevent financial disasters and broken families:  

          Buying homeowner's or renter's insurance.  Buying life and disability insurance for breadwinners as soon as you have dependents.

          Having financial goals and sacrificing to get there, even if it means living in an older, smaller apartment with roommates so you can save away 50 bucks a month.

          Family planning - have your kids when you can nurture them in safety.  This takes education about planned parenthood, not faith.

          Education and career planning.  It's the only way out in the long term.  

          Preventative personal care and habits.  Health disasters wreck everything in our current social system.  

          Maintaining the things you do own and not owning what you don't need or paying for unnecessary services.

          Avoidance of credit to purchase new items when something used or handed down will get you through.  Pay cash for everything except a modest mortgage, then pay that off as soon as possible.  Live where you can afford to live.

          Having a strict budget and keeping your skills up to date.  Seeking a niche for what you can do for others.

          Obey the law.  Getting in trouble will keep you down.  (Disregard if you are already wealthy ;)

          Teens need to already understand personal financial management long before they are out of high school.  These tools are especially important for women, as the playing field is far from level and they are likely to be on their own for at least part of adulthood.

          Working in estate planning, we see it all.  Often we help families and single persons that made it to comfortable, happy retirement on very little income.  Sometimes we see utterly miserable misers who have property but no loving relationships with their families.  Sometimes we see the elderly at risk of losing everything to foreclosure due to poor planning and risk-taking.  Most people seeking estate planning just want to make the end-of-life transition easy on their loved ones.  Without basic financial planning, you don't often make it to that stage of life with any loved ones or any property.  It's as basic as nutrition, even if you make only a modest amount of money.

          By 'being nice', I mean being honest, open, caring, thoughtful, giving, prudent and respectful of your own self and of others.  Money comes to those people, too, along with strong families.  You can't make nice relatives but you can pick nice friends and lovers.  It does seem that your social bond choices affect your lifetime wealth.

          The wild card in the U.S. is health. When, not if, we get universal single payer medical care, then health and wealth will not be chained together.

          •  You live in a different world than I do (3+ / 0-)
            Recommended by:
            RudiB, llywrch, KateCrashes

            Where people have money to do all these things. The majority of Americans have no significant wealth, and their income means they will be unlikely to be able to save enough to avoid disasters.

            The idea that the wealthy won't donate if we don't drastically increase their tax breaks (and I already consider being permitted to pay capital gains taxes on unearned income to be an undeserved tax break) is nothing but extortion.

            Telling people not to have kids they already have, um, yeah. That works. I hear that a lot coming from the right.

            And that poor people have love, while wealthy people are often miserable? Come on. Romney said it best. Yeah, he loves being rich.

            •  You can do this on 12,000 a year. (3+ / 0-)
              Recommended by:
              lineatus, SeekCa, misslegalbeagle

              If you start before encumbering yourself.  If my parents and grandparents could make it through the dustbowl and the Depression, this generation can work their way through this.  For example, how much does term life insurance cost for a parent, sufficient to protect 2 other people until the child is 18?  A heck of a lot less than NetFlix, smokes, games and pizza.  

              Doesn't take money to stay out of trouble and set up a budget, or to get a roommate.  Live someplace where the weather doesn't eat up your money in utility costs. Avoiding credit doesn't cost anything.  Walking is free.  I have gleaned plenty of fruits and vegetables in my time.  Still buy bread at the outlet, the place with the "Get Your Buns In Here" sign.

              Birth control and reproductive education need as much emphasis as the Space Program got 50 years ago.  Horse breeders in Northern Europe instigated a voluntary halt to their programs when the economy tanked - could humans do that?  It's not like we have to give up sex.  Every young person should be able to discuss the cost of raising a child and understand the social, time and emotional price as well.  Effective birth control should be available free on the taxpayer nickel, no questions and no parents asked.

              I support vastly increased taxes for the rich.  My family pays its share to the penny with no loopholes.

            •  66% of Americans own a home (1+ / 0-)
              Recommended by:

              that's a significant asset right there.  You're not doing anyone any favors by asserting that financial planning is only for the rich.  

    •  I'm an estate planning attorney (3+ / 0-)
      Recommended by:
      lineatus, VClib, Laiane

      and thought the same thing.  People are easily scared of things they don't know, I suppose.

  •  Nevertheless (4+ / 0-)

    Mitt Romney should have released his tax records for those years

    Defund Koch industries

    by machiado on Mon Nov 05, 2012 at 05:20:22 AM PST

  •  I found the book.. (1+ / 0-)
    Recommended by:

    "The rich and the super-rich"  by Ferdinand Lundberg to be very helpful in my math challenged understanding of how assets work for the obscenely wealthy. It is available for free down-load from the Soil & Health Library, because of its' copyright expiration date.

  •  Wow, what a helpful diary! Thanks. nt (2+ / 0-)
    Recommended by:
    Tom Anderson, OhioNatureMom

    We all understand that freedom isn't free. What Romney and Ryan don't understand is that neither is opportunity. We have to invest in it.
    Julian Castro, DNC 4 Sept 2012

    by pixxer on Mon Nov 05, 2012 at 05:43:04 AM PST

  •  CRUTs aren't evil. Mitt Romney is. (4+ / 0-)

    I'm the plowman in the valley - with my face full of mud

    by labradog on Mon Nov 05, 2012 at 06:03:52 AM PST

  •  CRUTs are a scam by which the rich get (3+ / 0-)
    Recommended by:
    terrybuck, radv005, RudiB

    to have their cake and eat it too.

    I'm sorry you disagree.

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Mon Nov 05, 2012 at 06:05:25 AM PST

    •  We could reform it so charities get less but (1+ / 0-)
      Recommended by:

      you would feel better, I guess.

      “liberals are the people who think that cruelty is the worst thing that we do” --Richard Rorty

      by jeff in nyc on Mon Nov 05, 2012 at 06:50:27 AM PST

      [ Parent ]

      •  It's designed to help people (0+ / 0-)

        who are already paying only capital gains on their income to make a small donation to charity and thus pay even less tax. Am I mischaracterizing it somehow?

        •  Yep. (5+ / 0-)

          If I give $100 charity and get a $35 deduction, I'm still out $65.  You don't make money by charitable giving; you just give slightly less out of pocket.

          •  I think you lost focus here a bit johnny (1+ / 0-)
            Recommended by:
            jeff in nyc

            If you give $100 to charity, you get a $100 deduction and up to a $35 tax savings. You're still out $65.

            If you give $100 of value (including most appreciated assets)  to a charitable remainder trust, you get a deduction equal to the present value of the future deduction (which may be equal to $35) resulting in a tax savings of up to about $12.

            I'm pretty sure you were describing one of these two scenarios, but I'm not positive which one.

            •  In either case, though, you're not going (3+ / 0-)
              Recommended by:
              Kane in CA, VClib, misslegalbeagle

              to wind up w/ more than what you started with.  That's all I meant.

              •  Absolutely (3+ / 0-)
                Recommended by:
                VClib, jeff in nyc, nextstep

                Nobody ever makes money by giving money away. Doing it "for the write off" is never free.

              •  a couple of points (0+ / 0-)

                1. romney would have been able to take a deduction based upon the projected value of the asset at his death.  Presumably he projected 5-10% returns throughout.  then he switched all the assets to cash- earning nothing.  he still gets to take his distributions, but the asset will disappear- and he gets the tax deduction already taken.
                2. romney would have paid 30%or more in capital gains- but for the cost of adminsistering the trust and the possible ultimate gift to charity he got to defer the taxes until he took the income- and the taxes are now 15%.  He also got to take the distributions at times of his choosing- when he could perhaps offset the gains with paper losses.

                Yes it is a great tool.
                The new laws , set up becasue of people like Romney, prevent some of this abuse.

                As my father used to say,"We have the best government money can buy."

                by BPARTR on Mon Nov 05, 2012 at 12:02:03 PM PST

                [ Parent ]

                •  Not exactly true (1+ / 0-)
                  Recommended by:
                  jeff in nyc

                  1, For purposes of the up front calculations, he doesn't get to pick his rate of return, the IRS does..... its called the 7520 rate.   The actual rate of return doesn't matter with regard to the up front charitable deduction.  If the assets outperform the 7520 rate, those assets all go to charity.  If the assets underperform the 7520 rate, he gets everything back but presumably he could have invested those same funds outside the CRUT for a better return.

                  2.  He does get the deferral of the capital gains butgenerally cannot choose the timing of his distributions unless he does a NIMCRUT or a  FLIP CRUT, both of which have some mechanisms to prevent the timing play totally.  

          •  So this is something I could do? (0+ / 0-)

            It is open to people earning the median income and can be used by them, too? Is the $100 amount you cite really a practical use, one that actually happens? Or is it necessary to have a large "donation" and an expensive legal and/or accounting firm on retainer to make beneficial use of it?

  •  rich eat all the bread & leave only the cruts. n/t (2+ / 0-)
    Recommended by:
    Angela Quattrano, KateCrashes

    A PALINDROME: Slip-up set in Utah. Trail, no? M. Romney -- odd! Elder an AMC man, a Red-led doyen. Mormon liar that unites pupils?

    by Obama Amabo on Mon Nov 05, 2012 at 06:27:28 AM PST

  •  As evil as cyanide and a hunting rifle (0+ / 0-)

    When you have an ant infestation and it's the beginning of deer season, those things make a lot of sense too.

    I'll leave it to others to explain how these things work and how popular they are with the upper middle class.

  •  I HR'd the Tip Jar of the Diary in Question (3+ / 0-)
    Recommended by:
    Catte Nappe, KateCrashes, VClib

    And so did 80 other people, FWIW. Here's why:

    Kavips is a self-professed Republican who wrote a deceptive diary and refused to update the information about it being deceptive, committed HR abuse by donuting those who questioned him, and who was HR'd to high Hell for refusing to change his title, which didn't match his citations (see the tip jar and the Hiddens as well as the comments toward the end of the diary). I wouldn't give that Kossack -- or diary -- any particular acclaim since it doesn't deserve it.

    The diary said that Romney had paid no taxes. The citations said nothing of the sort, but only that some of his taxes were put through CRUTs. This diary then was reposted about 3,000 on Twitter and something similar on Facebook. In other words, it was unsustantiated opinion AND the poster knew it AND presented it as "fact" AND it made its way around other social media channels where one can now find it on everything from Real Estate to Football blogs with commentary about how gullible and idiotic we, at the Daily Kos, are for supporting such a nonsensical diary.

    Regardless of ones' views on CRUTs.

    The poster, and the diary, were not operating in good faith.

    I thought he would certainly be NR today for the HR abuse, if not banned outright for that degree of trolling, but I have patience, and also, we're about to win an election, so that's more important to me right now! :)

    Vote YES on Prop. 30, California!!!! Yes on 30, No on 32 & 38. For the future of education.

    by mahakali overdrive on Mon Nov 05, 2012 at 07:05:03 AM PST

  •  What about capital gains? (1+ / 0-)
    Recommended by:
    mahakali overdrive

    I agree that CRUTs are an inefficient way to avoid taxes regarding charitable donations on ordinary income, but according to this Bloomberg article, Romney likely benefitted from the tax exemption on capital gains.

    Since we know that Romney has earned a disproportionate amount of his income via capital gains, he woul disproportionately benefit from a CRUT as well.

  •  Isn't this really (0+ / 0-)

    a way to avoid paying estate tax, reducing an estate that would have been above the estate tax exemption amount to below the estate tax exemption amount, while still giving the donor income during his or her life?

    Using my free speech while I still have it.

    by ebgill on Mon Nov 05, 2012 at 07:48:17 AM PST

    •  and (0+ / 0-)

      it's also a device for selling highly appreciated assets without capital gain.

      I don't think you can really say CRUTS are just fine and dandy. It's just another way very wealthy people can take advantage of the tax code which has been written for their benefit.

      Most people cannot afford this type of tax planning, so if the average guy's puny stock investments appreciate in their own puny way, the poor schnook who got a little bit of appreciation pays taxes on it while the rich guy doesn't.  The tax amount on the small appreciation of a small amount of stock may not seem like much, but to the less wealthy person, it matters. So, I'd argue the whole issue is relative, how one class of people benefits and another does not.

      I'd add that it also takes money out of government coffers and puts it into charitable coffers. Mitt gets to benefit his church and stiff the government. That's a priorities argument. Do we think it's better to impoverish the government so we don't get infrastucture improvements and health care while Mitt's church sends young me to France to try and convert people? Do we want churches to establish national priorities?

      Using my free speech while I still have it.

      by ebgill on Mon Nov 05, 2012 at 07:57:31 AM PST

      [ Parent ]

    •  Not a zeroed out CRUT. (1+ / 0-)
      Recommended by:

      Remember, if he's getting back most of the assets in his CRUT, then he's not reducing his estate tax.  

      •  I have to disagree with you here (3+ / 0-)

        Assuming the donee and the beneficary are the same person, unless the beneficiary survives long enough to recoup 100% of the value of the initial contribution after taxes, and does not spend any of those annual distributions (net of taxes), and assuming there is otherwise a taxable estate, there will be estate tax savings.

        Of the 20 or so CRUT's I've helped set up, estate tax savings were always a serious consideration, and it usually involved buying 2nd to die life insurance outside of the estate to replace estate assets.

        •  I was thinking of this CRUT as a tax deferral (1+ / 0-)
          Recommended by:

          vehicle.  W/ a zeroed CRUT/CRAT, I'd think that charitable intent (ie, transferring assets out of the taxable estate to a charity) would be secondary to the tax deferral play, which only works if the donor gets the assets back.

          Interesting point about the life insurance; w/ AFR rates in the dumpster for as long as I've been in this industry, we haven't seen a whole of planning, let alone interesting planning that involves insurance.  Although the insurance people I work with sure love the idea!

          •  Well yeah (0+ / 0-)

            i've been out of the business for more than 10 years. And a lot of things were different then. The planning techniques are the same but a lot of the dependencies (like investment returns) are a whole lot different today. I never did a CRUT with any expectation of being zeroed out, even pre-'97.

    •  A lifetime CRUT isn't a big estate tax play (1+ / 0-)
      Recommended by:

      If you set up a CRUT during your lifetime, then the assets you get back from the trust are in your estate, and the assets remaining in the trust pass to charity no matter what they are worth, so its not a big deal there.

      You can set up a CRUT during your lifetime for someone else, or set one up in your will for someone else.  Then you only gift tax on the value of the income stream , and not on the actuarial value of the assets passing to charity at the death of that person.

  •  I would say that CRUTs are part of the evil, (2+ / 0-)
    Recommended by:
    Egalitare, RudiB

    overly complex state of the tax system and reduce its overall progressiveness.  So Romney used a CRUT to shelter $1 million, and doubtless he used 249 other mechanisms to shelter the remainder of his income and assets.

    Look at all the hours/days/weeks that people spend on tax planning here in the US.  How does it work in England?  They send you a friggin post card, and you know exactly what you owe/receive.  Somehow we have lost sight of that in the US.

  •  Three words: (0+ / 0-)

    But thanks for the attempt. :)

  •  OMG (2+ / 0-)
    Recommended by:
    RudiB, llywrch

    I, unfortunately, did PowerPoint presentations for a few years at JPMorgan Private Bank, back in the late 90s - you should have SEEN the crazy-assed Rube Goldbergesque diagrams I had to jockey on to a page showing how these rich fucks could avoid paying taxes. It was craven and evil. There was an ingrained mantra that wealth = moral superiority, and that the coalescing and protection and growth of it was the new noblesse oblige. Wealth was ennobled. And believe you me, any of these bastards was looking towards their own bottom line and not doing anything for "charity". Al these structures were created out of a desire to keep money in their own purview and out of the hands of the tax man, as if contributing via tax to the well-being of this nation and this government was an evil to be avoided at all costs. And this needs to be pointed out. Especially in the case of Romney: here is a man absolutely disqualified from the presidency due to his utter lack of economic participation in the tax base for years and years and years. If he wanted to be a bishop in the Mormon church but tithed nothing do you think that would go over very well?

  •  CRUTs aren't evil, tax planners are. : ) (1+ / 0-)
    Recommended by:

    CRUTs can be useful charitable vehicles. Here Mitt got to tithe to his church and/or make an additional charitable donation. But you guys are thinking like charities, not tax planners.

    The first benefit Mitt got was a charitable donation equal to a percentage of the current market value of his donation. And he met his obligation to the church.

    The second benefit is that he can get back up to 90% of the value of his donation in subsequent year distributions. Only 10% of the value of the donation has to remain to be donated at the time of his death. True, some people want to leave a chunk for charity and won't drain the CRUT. But they don't have to in order to realize benefits.

    The third benefit is the CRUT allows him to defer or even skip taxes. Distributions in subsequent years are taxable depending on how the CRUT earned the the money it distributes - it's a tiered system kind of like LIFO / FIFO, but called WIFO. So the distributions may not be tax-free, but they may be tax deferred, which  could be advantageous in a variety of situations. For example, if the asset had appreciated and was in danger of depreciating and Mitt didn't have offsetting capital losses for the year, he'd want to set up a CRUT  to sell the asset and realize the gain. He would put off paying the taxes until later years. But the distributions may also be tax free. Once the asset is donated, the CRUT can sell it and reinvest, say in tax-free bonds, in which case the distributions paid from redemption of the bonds would be tax free. Also, even if Mitt's not draining the trust, the remainder donated to the church won't be part his estate for estate taxes. So he's made the donation without having to pay estate taxes first.

    Finally, CRUTs can let people have their cake and eat it too. For example, the distributions can be used to purchase life insurance placed in an irrecovcable life insurance trust. In that case, the donor gets annual distributions, the charity gets to keep any remainder in the CRUT, and beneficiaries get life insurance proceeds tax-free that pass outside the estate. It's win-win for everybody except the rest of us that actually pay taxes.

    •  I'm probably one of the few Kossacs who is (1+ / 0-)
      Recommended by:
      Kane in CA

      a beneficiary of a CRUT. So I am very familiar with the tax issues. I contributed to the CRUT some stock at the peak of the Internet stock boom, and the CRUT sold it before it cratered the next year. I took a tax deduction for the contribution and I didn't have to pay a large capital gains tax that year. As helverings said, also, the proceeds were then out of my estate and not subject to estate tax.

      I pay tax every year on the distributions (I have to hire an accountant to figure out how much). The CRUT value has increased despite having an annual amount withdrawn. So it will benefit charity in the end, more so than if I hadn't done this tax maneuver (unlike Romney).

      It's convoluted but it is not as exotic as Cayman Islands investments. However, it is true that this tactic is not available to most taxpayers because the costs of setting up the CRUT and handling the taxes could outweigh the benefits unless you have a substantial amount to contribute.

  •  Highly informative diary, thank you (0+ / 0-)

    And a special relief after yesterday's craziness.

    "Injustice wears ever the same harsh face wherever it shows itself." - Ralph Ellison

    by KateCrashes on Mon Nov 05, 2012 at 03:47:34 PM PST

  •  Thanks so much for this diary! (1+ / 0-)
    Recommended by:

    I found it very informative and easy to follow.  What I conclude from this is that CRUTs are not the best way to invest or avoid taxes, but a good way to do that and make charitable contributions.

    Know what you believe, why you believe it, who believes with you, and how it matters. Stand for what you believe, believe what you stand for.

    by VeloVixen on Mon Nov 05, 2012 at 03:51:25 PM PST

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