Pay ZERO Taxes on Your Crypto Gains with a CRT Pt 2 | Mark J Kohler

Foreign.

Welcome, everyone, to the Main Street Business Podcast. This is Matt Sorenson, joined by my number one co host, my only co host, Mark Kohler.

Thank you. Yep. There's only. I was like, still number one. Yeah.

Just tell number one, Mark.

I'm glad I'm your number one, Matt. Thank you. You're my number two, as Jean Luc Picard would say in Next Generations, you know, or did he call this guy number one or number two?

You know, I don't know.

I just.

You just want to be first, not last. That's all I remember from that show.

Yep. I'm a, I'm a Trekkie, but a weak one at that if I don't even know what Jean Luc Picard called his helper. Okay, now welcome, everybody. Today's show, we're gonna try to keep it light, keep it interesting, and keep it extremely engaging and informational. Sweet topic, Matt.

I mean, yeah, I mean, it's an amazing topic. We're talking about the amazing strategy of the Charitable Remainder Trust, which is something that can help you save taxes if you got a highly appreciated asset. It's a great estate planning tool. There's even some asset protection benefits to it. It's a little. It takes some work to get. It's not just like, I'm going to give you a one sentence thing. Do this. Here's an easy button and you got it. Yeah. So that's why we got to do a whole podcast episode on it.

Yeah. And there's a lot of renewed interest in the crt, and we're going to call it that for short during this podcast. Crt, Charitable Remainder Trust. And a lot of renewed interest because of the appreciated gains people around the country are facing with cryptocurrency. Most predictions are that we're on, you know, we're in the. What do you call it, the calm before the. Another run. Everybody holding crypto is hoping for a run that we've seen repeatedly over the last 15 years. Kind of ups and downs.

Yeah.

So if you're facing a big gain in real estate, a big gain in cryptocurrency, and never realized you'd be considered a 1%er, you want to understand the Charitable Remainder Trust. We are busier than one armor paper hanger. Is that what they. One armed paper hanger, helping people with trusts, the charitable trust. It's good stuff.

But, yeah. And this is something that if you want to sell that asset, I mean, there's a charity component too. We didn't even mention. I mean, I just, I mean, this is This, I mean there's, you know, do something charitable in your life here. Okay. It's not just about saving.

We kind of skipped that part. Who cares about the charity? You said saving taxes. I'm in.

Yeah, it's like, oh, I can give it to charity. Yeah, it doesn't really matter.

I don't care about that.

But yeah, this is even, you know, real estate's appreciated and this is what, you know, back in the day we would use this strategy mostly for people selling a business. Sometimes use this strategy. It's really any appreciated asset, which crypto has been one of the big ones for those of you that got in early on it. And so Mark's going to break it down if you, you know, Mark's got a lot of views on his YouTube video on his first round on this and is, I don't know, turned into a. Have a. You've had a renewed interest in the CRT yourself. Yeah, I remember us doing one like 15 years ago together on someone selling water rights. They were selling water rights to the Southern Nevada Water Authority. A farmer, rancher with a. Apparently these are, this is millions of dollars worth of water rights used a CRT for, to save them taxes.

Apparently water is kind of a big deal in Nevada.

Yeah, they pay big bucks for that.

I mean it's a desert. So yeah, valuable commodity. Valuable commodity. So let's dive right into it. And we are grateful for some of you that may be a new listener, a new viewer. We record this podcast every week, been doing so for 10 plus years, helping small business owners around the country. And we have a sister podcast that's all about Roth IRAS 401ks self directing your retirement accounts into what you know best. That is the directed IRA podcast. So if you have a retirement account, all sorts of killer strategies over there. But today we're talking about the average American that's now going to dip their toe into some high end tax strategies that can be very affordable. The CRT is very affordable in big, in the big picture to implement.

Yeah.

And I've got a whiteboard. So I'm going to put it on the whiteboard for Those watching on YouTube, you're going to be able to see this. For those driving down the road, if you listen to this, hopefully visualize it, but you're going to probably want to catch it over on YouTube after the fact. So.

So now my job here is to dumb, dumb the conversation down a little bit because that's my level of understanding on this. Like I said that seriously, that, that that water rights one we did 15 years ago, or however long ago that was the last one I did. So Mark's been doing a lot more of these and other attorneys in our office. But okay, so we gotta start with an asset, right? Okay, like who should even be thinking about this, Mark?

Like I think the most common right now is the cryptocurrency holder. And I think most people can get their head around that. But let's say you bought a property for 200 grand and now it's worth a million. It's a duplex, a four plex, something that you maybe bought five or 10 years ago. And the real estate for the most part is a seller's market right now. And you might be thinking, oh, I'm going to sell this, but I don't want to pay the taxes. A farm, a cabin, a second home. That's typically where the CRT has really earned its claim to fame and they've been around for 30, 40 years. But in the last, as we mentioned, in the last few years, someone may say I bought some cryptocurrency for 10 grand or 50 grand and now it's worth a million dollars. So if you were to go sell that, if you take Fed and state taxes and the Obamacare tax on top of that, or the affordable health care tax, ACA tax, you could be easily in 22% or more with your capital gain. Then you add state onto that, which could be as high as 10% in some states. You're going to lose 300 grand to taxes in that example. So I sell a million dollar asset, I pay 300 grand in taxes. People are like what, are you kidding me? More taxes than I paid in the last 10 years. I know, but 300 grand in taxes and then you're left with a nut, a think of a squirrel putting their little acorns in the tree. You're only left with 700 grand to go create more wealth. So that's kind of ground zero or how would you explain that, Matt? Right, yeah.

Yeah. So if I'm trying to save 20,000 in taxes, this isn't for me, you know.

Right.

We want to be looking at an asset that has a couple hundred thousand of appreciation to be thinking about this. Sure. Could I save taxes and do this on something that I've had hundred thousand of gains on? Yeah. It's just maybe not be cost effective and it's a lot of work for that. So you got to have a number big enough where this works there. So I, I would say a couple hundred Thousand of gain. Be thinking about this under that. Don't worry yet. Don't worry.

Now, what I did here is in our whiteboard for those that are now watching on YouTube. You see this third screen? So up in the left hand corner, I put our example. I have a million dollars in cryptocurrency. I bought it for 100 grand. That means I have a gain of 900 grand. If I just go, let's say a 30% bracket, which many of you go really well, if you're in a state with state tax, you're going to get there with capital gain. So that means 300 grand in taxes.

And by the way, next year, who knows, we could be at a 25% max capital gains rate. You could be at 35% for those of you in California, because you're paying 10%, you know, plus. So, so this, this strategy is going to even be more important as tax rates go up.

So in this example, if you have a $900,000 gain, you're going to pay $300,000 in taxes. And you might think, is this really. So I net 600? No. What did you start with? A million. So I wanted to put that there. The real net is 700 grand. See, you've got to figure out what's my baseline. So I take my fair market value minus what I bought it for. And I know with crypto you might have had different purchase points. You got to do your best to estimate it. But if you say, well, I've got about 100 grand in basis, meaning that's about what I spent to get this, then you've got your gain, you do the taxes, and then you don't subtract the taxes from the gain. You subtract the taxes from what you received. So when you sell this thing, you're going to get a million bucks. So the real net in this example would be 700,000 after paying 300,000 in taxes. All right, so that's our baseline. Now if I went out and invested that 700 grand, and let's just say I got a 10% rate of return or a 5% rate of return. And if we just keep easy math, a 10% annual return with a very wonderful EFT or mutual fund, that's 70 grand a year in income. That's it. Not great. So the CRT comes into play to help alleviate that 300 grand. Now, let me give a little spoiler alert before we do step one, Matt, but spoiler alert. And this is a, I guess a good news alert when you Build a crt, you can continue to trade in crypto, you can continue to make additional contributions to that trust, and you get to serve as trustee making the biggest rate of return you can in that crt, which will increase your payout. So we're going to come to that. So hold tight. These things are pretty darn freaking cool. All right, so in my. Now I've got a fresh whiteboard.

Okay.

And we're going to start with step one. All right? All right, Matt, Step one.

All right, step one, you got to set up this trust. The first thing is don't sell the asset. Don't just sell the crypto and be like, all right, guys, how do I save taxes on this now? Yeah, game over. We can't help you. All right, you need to establish the trust which the crt. Charitable Mainer Trust. That's going to get the assets. Okay. So we need this trust first because that needs to receive the assets and sell it later on in the steps here.

And we're going to talk about different types of CRTs. When we meet with the client. We're going to go through models of different options based on your age and what rate of return you want. I'm going to give you some examples in a moment, but let's just get off the table. The cost, too. I've seen law firms around the country charge 15 to 20 thousand dollars to do this. I think it's highway rough.

Easy, easy. Yeah.

We have found a good price point where we feel we can educate the client, get it done, turn it around, and make it a win win where our fee is around 5,000. And I will forewarn you now, your annual maintenance is going to be around 2,000 to 3,000 a year to maintain this thing with all the bells and whistles, tax returns and everything. Now don't stress because you just saved 300 grand in taxes and there's a value to that. You're going to be happy to pay an annual fee to keep this thing churning, but. Okay, so we'll come back to that, too. So don't stress about the fees, the cost. It's not off the chart. Number one, set up the crt. Okay. We're going to. Yeah. Consults. We're going to find the right crt, we're going to draft it, you're going to get it. I n. And I just want to. Again, a little spoiler alert that Matt said. We don't want to sell the asset before the CRT is created and funded. We want to transfer the asset to the crt. And we're going to go through these steps in a moment. But this means your CRT will have its own wallet. It'll have its own bank account because you need to transfer your assets, even if it's real estate, you're going to deed it to the crt. You're going to transfer the crypto to the CRT wallet before you sell it, which maybe Matt brings us to step two. What do you got?

Yeah, so you need to get the asset into the trust. So you are going to contribute it. You're basically almost like donating this. Okay. This charitable remainder trust has a charity at the end of the day that is going to get the balance of this asset after incomes paid out to you and all these other things we're going to talk about. But there's a charitable component. So you're. I'm sending in this charitable deduction or, sorry, donation into this trust. I don't own it anymore. The trust does. The charitable remainder trust owns the asset now.

I like what Matt just said. So on the diagram that you're seeing on YouTube, we don't really call it a step, it's just part of the crt. So if you look below my box in the middle of the page that says step one, create crt. So that's the central unit that the universe is going to, you know, orbit around. The charity is a beneficiary at the end of the party. So at the end of this play, the charity is going to get whatever's left. We'll come to what amount they're going to get. But that's part of the crt. I wouldn't call it a step. It's part of step one. You got to identify a charity which we talk to clients about. It could be your own foundation, it could be a donor advised fund, it could be a church, a school. Okay, so step two is you got to donate the asset. So I'm going to put the asset up in the corner on the far left and step two is donating it. And like I said, it could involve a variety of transfers or methods. Right. I don't know. Do you want to add to that?

Yeah, I mean, you know, if it's, if it's crypto, you're going to need a wallet, you know, the trust owns that's unique from your personal wallet. All right, you're gonna need to transfer the crypto. Yeah, with an institutional wallet is what you'll need. And so, you know, if this is real property, you'd be deeding the property out of your name or your company, your llc, over to the crt. And it would. And that asset is owned in the name of the trust, you know, the XYZ Charitable Remainder Trust. You know, this is who's gonna own this asset.

Okay, now remember I was just gonna

say, right, when I give something to charity, don't I get something? Oh, yep.

There you go, baby. Matt brings up step. Yeah, we're going to put step three off to the right. So in our diagram, we got CRT in the middle. Coming down from the top left, we have this asset that we're donating. Now directly off to the right, we need to cash in a charitable deduction. Now that's going to be a derivative. Now everybody, you hated your fifth grade math. Some of you did a little math in college maybe, but here's the deal. If this CRT that I'm creating now for a million dollars is going to give a charity $1 million 20 years from now and I'm going to get the income off of it until then, that's just in basic terms. Well, the charity doesn't get it for 20 years or 30 years or until I die. So what is that million dollars worth in today's dollars? And so we have to bring that future donation back to present value. You engineers and accounts, we call that pv present value. We're going to bring it back to present value. And the IRS tables about 3 inches thick, if you were to print them out, are going to tell us what is your tax deduction today based on your life expectancy or the term of years that you, you decided upon for this trust. So I'm going to put IRS deduction now. Could you explain that? I mean, it's not a one time deduction, basically.

Yes, and basically, of course, just if you're younger, the value of your deduction is going to be less. 80, this value is going to be pretty high, close, you know, from the 1 million. Now when you take the charitable deduction, you know you're not going to get this whole thing all in one year necessarily. Right. You're going to have to break this out typically over multiple years, which is fine. You can carry forward that deduction if you don't get to use it all in the first year and maybe you don't have enough income to offset, you know, you got a huge deduction. I don't even think of an offset that much. All right, can be carried forward. But I know there's some rules on the charitable deductions. I know 20, 20 there's no limitation on charitable deductions. 2021, that was from COVID you know, relief. But right now, in 2021 and forward, are there limitations on how much you can take each year besides regular income?

Yeah, it's based on your adjusted gross income. In years past, it's generally been around 50%. Congress is always tweaking in it, so I'm just going to say it's generally 50%. As you get into the nitty gritty, folks, whatever time you might see this video and implement it, don't hold on to that figure too hard. But you're going to take that deduction and you have to use it up over five years. So if they only let you use 50% of it of your AGI a year to do it, then within five years you have to use it. And anything you didn't use is lost after five years. Now, I've never had a client that hasn't used it. Now, here's a couple reasons why. Maybe some of you that are owning crypto, you'll say, hmm, donate some crypto to the crt, get a cool tax deduction, and then I'll sell some personal crypto and help offset the gain at the same time I donate to the crypto. So if you time it right, you can really take advantage of this.

Yeah. Match up that gain with the deductions. You got teed up.

Yep. Love it. Love it. Okay, now step off strategic. Yeah, it totally strategic. Okay, now, have you sold the crypto yet? Have you sold. Nope. And I think this is a good point to say there's no time. I get this question in a lot of my consultations. There's no time requirement that if you create the CRT today, you got to donate your crypto or real estate next week or next month or two months from now. Create the crt, be ready to go, have the wallet created. Be ready to transfer on a heartbeat so you can transfer over at the highest possible value so you get the best tax deduction. And then you can even do additional contributions six months from now, and it recalculates the corpus or the amount of the trust.

Yeah.

Now there's a.

Once you transfer that, it's a done deal. It's not like you're like, oh, man, crypto went up more. Can I transfer it back and then go back in? No, no, no. One and none.

Oh, and I probably should come back to the IRS deduction. Some people ask, well, what would. I guess the tax deduction might be what we're seeing More and more. Is that around probably 15% to 20% of whatever you donate comes back in a tax deduction. So if you put a million dollars into this CRT based on your age, because I'm seeing younger people do more and more of this. I've had consults with 30 year olds doing this. So in prior videos, I've said, oh, your deduction might be 30 or 40% of the donation. Not if you're in your 30s and 40s. So we could see it as low as 15 or 20%. So that means you have a $200,000 tax deduction to use against any other income, your day job or sale of personal crypto. Okay, so, Matt, step four, okay?

Now we've got the crypto. We have the trust set up. It's got its own wallet. It's gonna. We've taken a deduction because we put that charitable donation into it, the crypto itself. Now you're ready to sell, and I

would say you don't have to. Now we're gonna create a stream of income for you, the donor. That's the whole goal here, is we want to create some income for you, which, this is gonna blow you away. You're gonna love it. But a lot of people ask, well, do I have to sell the crypto on day two? No, you could wait. Now, if you transferred it at its highest, greatest value, and you think this is the peak, it might be smart to sell it and get it in. Right? If it's real estate, same thing. Let's sell it and put it in the bank, and then you can redeploy it on day three, wherever you want. Okay, so we're going to sell the crypto. Now, Matt, do I pay tax when I sell my crypto?

No, you don't own the crypto.

No tax.

A charitable trust that doesn't pay tax owns the crypto.

So in our whiteboard, on our whiteboard, if you're driving up in the right hand corner, we've. I've put step four. We've sold the asset. Ooh. And I put crypto here because that's kind of our example. But I don't want to hang our hat entirely on that. So I'm going to just say, sell asset, whatever it is. So we're going to sell the asset and pay no tax. Now, the beauty of this is, theoretically, again, there's all sorts of variations. You're going to have a million dollars sitting in your CRT wallet or bank account, not 700. See the point, people? Now you've got a bigger pie or a bigger nest egg to play with. So we sell it, no tax. And now $1 million is sitting in my CRT. Okay, now you're like, yeah, I mean,

go ahead, but I don't own this anymore. This million dollars isn't mine.

Yeah, and this is where it gets good. Because you're like, why in the freak did I do this? Sure, I appreciate the tax deduction. I didn't pay any tax, so I got best of both worlds. But now we have to create what

say, well, I own it, so, yeah,

I don't own it. Okay, now the CRT is going to create, when we draft the document, an income beneficiary. See, the ultimate beneficiary is the charity. But until your date of death or a certain term of years, and you get to decide you're going to get a payout of this crt. Now I'm going to, at this point, I'm off to the left. I'm going to put a little arrow and I'm going to put cash flow and I'm going to give probably the two may even do the third. I'm going to do three options that are probably the most common that we do at our office. So for cash flow, we have option one, which is a Krat, a charitable remainder annuity trust. Now, if you've seen some of my other videos on YouTube, I taught it in the, in, in the viewpoint of a CRAT because it's easy to get our head around. I'm going to, we'll come to it. But, but there's two other options that we actually use. More, just a little more complicated. The option two is a crut, and then the next one is a crut. Flip. Crut. Flip. Some call it a flip crut, but we're going to deal with that. Now, if you actually go to a training, which you would never want to do, believe we took the heat for you, we went and took one for the team. If you went to a full day seminar on this and could actually stay awake, you would discover there's probably 330 variations of these CRTs. But I'm just giving you the top three that are pretty sexy. So, Matt, tell us about the Krat. I mean, pretty straightforward.

Well, the Krat is nice because it's guaranteed. Okay, so, you know, this is the charitable remainder annuity trust. And so you're going to get a stream of income on this based on your life or term of years. And so the nice thing is I got a guaranteed percent that I'M going to get out of this trust over my lifetime or term of years. And so I'm locked in. I know, let's say I wanted a certain amount of income to live off of, I want to retire, or whatever it may be. This could be a good option if you want to lock that in and just say, I want safety and security. I want to know what I can get out of this.

Yep. The sucky part with this is it's going to be a lower rate of return because the IRS is going to say, if you want it guaranteed, we need to make sure that there's some money left over for the charity. So the. This KRAT goes through two tests. There's a 5% probability test that you're not going to run out of money. So we've got it in the tables. And your term of years, you choose, and your life expectancy, the IRS is going to go, yeah, you can get 5%. That's about all we're going to give you. The younger you are, the less it's going to be. The older you are, the more you might get. But the IRS tables are not really generous with this crat because it's guaranteed. The second test is this shows that at least 10% of the trust will be left over for the charity. So a 5% test that it's not even going to fail, and a 10% test that 10% of the trust will be. At least the charity is going to get 10% of this thing. So when you drop this in an IRS table, guess what? The younger you are, the less money you're going to get. The older you are, the more you might get. And then you can say, well, I want it for just 20 years, or I want it for 13 years, or, you know, a certain term of years, so I get a better guaranteed rate of income. Most people don't choose that because they're like, if I'm going to do this, I want guaranteed income till the day I die. So, yeah, so I'm going to.

It's nice because you have guarantee on the box. Yeah. Right. And if you're. And if your income in that year of that trust isn't meeting the expectations right, you're dipping into the principle of the trust, even to get your payments.

Yeah.

The trust has to pay you. It's like. It's like an annuity with your insurance company. You know, they got to pay you.

And under the krat, one other drawback is you're not going to invest this thing. You're not going to be able to probably keep trading crypto and if you add additional assets to the trust. And it can be really problematic because you got to recalculate the annuity. If a person chooses a krat and they want to put more money in their trust, we usually do a second krat because they're kind of fixed on what you donated. Your term of years, your life. Here's your guarantee. The end. So it's not the end of the world to do a second krat, But I had a client this last week, older client. They're like, this is exactly what I want. I want it guaranteed with a three AAA insurance company annuity, five star, whatever the hell you know. So you're gonna not invest it? I'm gonna put not investing personally, I'll just put not investing. All right, now that brings us to the crud. Now, I kind of love the crud because we're not looking for guaranteed income. We're not looking for a guaranteed percentage based on the value of the pie every year. Now, if I have a client that may be 45 years or older, we're seeing rates of about 10%. I had a 50 year old the other day, got 11%. So it was. Sometimes it's based on a single person's life or married couple's life, but a crut is called a charitable remainder unitrust. Now there's nimkruts and nim, there's so many variations, but we're just going to call it unit trust. And you're going to get a fixed percentage, but the amount can change based on the value of your trust. So if you want to keep investing it and building it at the end of next year, you value the trust every year. So on year one, it's worth a million, you get 10%. So you're going to get 25 grand every three months all that year. Then next year, same day, they're going to value it. Now, if you invested the heck out of it and it's worth 1.2 million now, well, you get 10% of 1.2 million divided by four and every quarter you get a check. You're going to have to convert some of that money to fiat. If it's in crypto, if it's in real estate, you would have sold it and you're putting it in investments that generate. So you want to generate income but have enough liquidity that when it's distribution time, the money's there. So a fixed percentage. What are your thoughts on the unit trust? Why do you like that matter.

I think for people that want to stay actively involved in the investment asset on this. And it is like, kind of like, what are you looking for? What's your personality? What stage of life are you in? Do you want to keep building this? Do you need this to retire on? I think for those, like, hey, I want to keep working this. I want to keep building this. This is cool. I'm going to build this. It's gonna go to a charity at the end of the day that I'm. That I care about. And I'm also gonna get a piece of the pie as I continue to grow this thing. And you get some responsibility, you get the benefit of the gain. But also if you bomb it and you take it down to 900,000, you're getting less. All right, so go both ways. So that's why some of you, if you're like, I'm doing this and I'm 60, you know, and you're like, I kind of want this in retirement. I don't want to be working anymore, and I want to just play a ton of golf, you know, or whatever it is you want to do in retirement. Yeah, let's just do the annuity.

Yeah, yeah. It's. It's. It's. Yeah. Lots of things to weigh here. Now, I'm going to add a little variable here. When I meet with clients, we may say, are we going to do this over your life? Or you are you and your spouse's life if you're married. Now think about that. If I'm going to guarantee payments over time, and it's based on two lives, and especially when you throw in a female who have a life. Longer life expectancy.

Yeah.

Then. Now you've got a trust that's got to last longer. So even if you are in your. Even if you are in your 40s or 50s, you might. I might come back with the tables, might say 9%, and you're like, what the heck, Mark? In your video, you said 10, blah, blah, blah. Remember, this all depends on your life expectancy. And is it over you and your spouse's life. Just your life. What do you want? And so we're going to craft the terms that meet your goals the best we can until you. What you get. Okay, now, Matt, you're going to love the crut flip. Okay?

Oh, okay. I don't know the crut flip.

Now I'm going to start with a little.

Is that like. Is that, like, different than a. It's not a backflip, a front flip. It's a crut flip.

Yeah.

What you're going to, like, trampoline involved or. No?

No, trampoline. It brings in Brian Regan.

Oh, okay.

Now, Matt's seen Brian Reed in the Comedian Live. Twice. Is it twice?

Once.

Once. Okay.

Just once. He was amazing.

He was good, right? You loved him.

Oh, so good. Yeah.

Okay. Because there's a little scene. I'm gonna let Matt explain it when it comes to this. Okay. The crud flips means you're gonna flip a switch at some point and turn on the stream of income. You know where I'm going at. Okay, so let my analogy is think of a drag race. Now, some of you watch this for about nine seconds before you change the channel, but in espn, they might do drag racing. And this is where they have these really long cars with two big fat tires in the back, and they're going to go to, you know, 500 yards as fast as they can. A drag race. Well, if you look at the. When they're ready to go, they have this light that goes from red, pink light, yellow, yellow, yellow, yellow. And then green, and then they go. Okay, okay. Now, if you've ever watched this, they don't wait till it's green to hit the pedal. What these drag racers do, and this is why they're, you know, not only risking their lives probably, but they're trained to say, I'm going to hit the gas and the brake at the same time, and I'm going to get these tires burning. So when the light hits green, I'm going to let off the brake. And I already have inertia that's going to shoot me off the line faster than waiting for green. And they're just hitting the pedal. If you just wait to hit the pedal, the guy next to you is going to be on the race because they have inertia. They've already got the tire spinning.

Are we still talking about the crt?

I'm talking about a crt. All right. Geez. Okay, now with the crud flip, let's say I have a client that's 43 years old, and man or woman, I've done male or female singer, married, whatever, But I'm just going to say it's a single individual at age 43 and says, I'm going to do this. I'm going to pop in a million dollars. I asked him on the call, do you want the money to come out immediately or could you wait till you're 50? Could you wait seven years? Keep killing it at work. Keep building your roth Keep buying rentals, keep building your side hustle, get out of debt, keep building your retirement. But the CRT, you're not going to touch it for seven years. Now, you could be two years, it could be six years, it could be 10 years. But let's just say you're 43 years old and you're like, you know what? I can keep the grind going for seven more years knowing that age 50, I'm going to flip it, I'm going to hit green, and I'm going to let this baby go. Well, when you do that in the IRS tables, the IRS goes, oh, you're not going to start distributing money until age 50. And we've got seven years to build up the corpus. That million could very well end up being 2 million. And they're going to use the rules of 7 and da, da, da, and rates of return and say, you know, you know what? If you wait till you're 50, we're going to give you a higher percentage rate because we know there'll be more left for the charity. And you're going to have a bigger pie to get the money out. So I can see a client instead of getting 100 grand coming out of the gate. They wait seven years, they might get 200,000 or more by just waiting those seven years, because they're going to flip that switch in seven years. Now, how would Brian Reagan, you know, maybe explain this?

Yeah, so the Brian Regan, you know, bit is about, like, I don't know what he wanted turned on, like his Internet or something. And he's like. He's like, isn't there just someone that's just standing by? They just need to, like, flip a switch. Like, come on, switch liver. Flip that switch.

I think, you know, spiel is you're to move into a new apartment, and you're like, yeah, I just need the power run. Just turn on the power. Well, four days from now, some guys got to just flip a switch. Just call them up. Where's the switch flipper? He's got to be someone.

Switch flipper. No switch flipper. But yeah, okay, so you get a little bit of control there. That's cool. You get to get more money down the line. Now, is that asset accumulates, right? There's no tax on that. It went from 1 million to 2 million over that seven years. It's in a charitable trust. It's not paying tax.

That's right. There's no taxes. And you started with a bigger nut. And you can contribute more crypto or more real estate or Other things along the way. You're just building up this pie, throwing in cherries, throwing in whipped cream. You're throwing in pecans. You're building up this pie. So it. Whatever age that is, in the example, we'd say 50, maybe that pie is going to just be overflowing, ready to send you cash, and you flip the switch.

All right, Pretty sweet.

Okay, then flip on payments, hold payouts, then flip on payments, and that's called a crud flip or a flip cut. All right, that, my friends, in our example, was step five, because we want to start payments. So let's review. Step one, set it up. Step two, donate the asset. Step three, claim my tax deduction because I'm such a great person giving money to the. To a charity. And then step four, I'm going to sell it, invest it, trade it. I'm going to say that. Sell, invest, trade, whatever. No tax. Step five, I'm going to set up payments based on generally a krat or crut or flip. Crut. Whatever I want to do. Mm. But who's mad in this situation, Matt? Someone's pissed.

Well, if your parents are doing this and you're like, oh, I was. My parents, you know, they work their lives, they have these assets in this estate, and, you know, I eventually am gonna get to benefit from that. I've been such a good child. Wait, a charity's getting all your assets when you die?

What are you guys crazy?

You put the family farm into the. Into a CRT to avoid taxes, and now you die in this lovely charity. You selected that. I mean, bless you for doing that and helping that charity. But. And I'm feeling a little slighted. The kids are always a little annoyed when this conversation happens.

You know who I think of when I think of this is George Costanza in Boca Vista. You know?

Yeah.

And I can. If you're a Seinfeld fan, I can see George going, you did what? You know who George is? The infamous freeloader, you know, waiting for his parents to die. And come to find out, they gave their Boca Vista condo to charity and did a crt.

You know, he's the only child. He's tolerated them for years, and, you know. Yeah. So now there's a solution, though, for the kids. And I think even the parents are a little worried about that. You know, think of you and building your estate and throwing a significant asset into here, and you're like, and I did want a legacy and kind of value to go to my kids later on. Well, there's a solution. My friends.

Yes. Yep, you're not going to get slighted. So step seven is off to the right hand corner, bottom corner in our whiteboard. And I'm going to put the word ILIT I L I t. Now that stands for an irrevocable life insurance trust. So I'll put life insurance right below it so everybody kind of understands kind of what I'm talking about. But this little life insurance trust is going to pay out. In this example, we'll say a million dollars. You're going to go get $1 million life insurance policy, and that 1 million is going to go to the kids or your spouse. See, let's say I set this up on my life and I die. The charity just got all the money. My, my wife might be like, whoa, whoa, what happened to all those payments? Well, they're gone. Well, what Mark thinking, what a freaking idiot. I needed that income too. And so instead, see, because instead of doing two lives, I did one life and got a bigger payment and a bigger tax deduction. So instead of leaving your spouse holding the bag or your kids, you say, you know, don't worry about it, I got bigger payments because what I'm going to do is fund a little life insurance policy for a million dollars. Now this is where whole life comes into play. No matter how sick you get this life insurance is guaranteed. It's going to have a cash value that after five, six, seven years, this cash value could actually support the premium payments. That's how it's supposed to work. If things go right.

Yeah.

And then the kids get a million dollars tax free.

Now for those of you that have other assets in your estate, you may be like, you know what, let's not worry about my spouse getting, we have other assets when I die, spouse can live on. We don't need to worry about spouse getting paid out in life insurance. Let's have it go to the kids. And with the estate tax exemptions now 11 million per person, married couples get up to 22, which by the way is going to get cut in half if the proposals in the house tax bill on the state go through. So. But the nice thing about the islet is it's not part of your state. That million dollars is not part of your estate. It's not going into that calculation of 5 million or 11 million, whatever the state tax exemption is at the time you die. So it's cool because now your kids get this part this in, it's outside of your state, no estate tax on it. It's a nice solution. On estate tax, too.

Yeah. Now, you may think we're done, but we're not. We've got more sham. Wow.

There's more.

There's more. Matt, I've got a set of knives over here that you're going to get when you buy this. No, I'm just joking. No one gets to set up, so. Nice. Yeah. Okay. What? Step eight, we can't forget the charity. So step eight, once you die, life insurance pays out, and the charity receives whatever's left. Now, the whole goal of this and why the IRS had restrictions on your payout and procedures is the charity's gonna get something. They're happy about it. Now, what's cool is sometimes charities, they want to plan for this. So you want to engage the charity early on and go, I'm gonna do this. And they might name a building after you. A wall, a chair in the quad, you know, maybe a little park bench. Maybe you had an incident where you dropped a kegger off the top of the science building. And they're like, you know what? It's payback, bud.

Yeah.

Anyway, the point is, you can go to your benefactor and say, I'm going to give you this money. Now, they're going to want the charitable designation to be irrevocable. Because if you're going to go to the charity and go, hey, I'm going to leave you this million dollars when I die, they'll go, thank you very much. We'll plan on it. Here's, you know, blah, blah, blah. We might give you some tickets to this or that, but you. You have to realize, in most of the trusts we draft, you can change the charity if you want. So if you engage with a charity to maybe help pay the bill or get involved with them, they're going to want that to be irrevocable. But the charity receives their money. Step eight. Yeah.

Now remember, I was gonna say back on step seven. One thing it's important to note is there's a cost for that life insurance policy. Right. And if you're older, this could be an expensive policy, but the CRT can pay for it. All right? The income coming from the trust can pay those premiums.

Love it.

Love it.

Now, some of you that are. I'm going to use one disclaimer before I tell you there's more. Okay. There's even better news here. But what I. But one other disclaimer. Some of you that might be accounting professionals, legal professionals, and financial professionals that have done some work in this area may be saying, mark, Matt, you've dumbed it down. You're wrong. This, that, whatever. Guys, ladies, people. We're just trying to give a general explanation of a very complex strategy. And of course, all these variables are going to depend on the dollar amount, the asset, your age, and all sorts of variables. There's nimcruts and charitable lead trusts, and there's remainder trusts. There's so many variations. So when you meet with your advisors, they're going to help craft something that fits your needs.

Yeah.

Okay. Now, I don't know if it's a step, but I got one last piece of good news. This entire structure, the crt, is asset protected from any creditors. This is a big deal. So let's say you set up the CRT and your teenage kid is driving down the road texting and driving, and kills a family of five, heaven forbid. And they sue you because you own the vehicle and your kids in minor. And in your state, you're liable for your kids. Torts is the word I was looking for. If you go to law school, you're going to learn about torts, not tarts. Torts is a crappy lawsuit you don't want to lose, but your life may be liable for that. Well, a creditor cannot get into your CRT and take it away. And a lot of times we put in a spendthrift provision in these CRTs where if there's a creditor standing around ready to take the money, we don't distribute. And because. Would you want us to distribute if a creditor's gonna take the money? No. So that forces early settlement. It helps you in a lawsuit try to resolve it more quickly and for a lesser amount because a plaintiff attorney is gonna realize the CRT can't be touched. So it's really, really powerful for asset protection, which I love.

Yeah. And that it's asset protect. A lot of people think, well, how can my family trust, my revocable living trust, they did for estate planning. Well, that's revocable. So that those types of trusts a creditor can get into. We don't use state planning trusts like that for asset protection. We use for estate planning. But the CRT is an irrevocable trust, which is another important point thing to say. If you do this, you start this, you put an asset in it, you're doing it, all right?

You're committed.

Okay. There's no, like, let's. Can we shut that down and move it back out?

Nope. Yeah. So cool.

Just be careful about that and make sure you have that in mind. But because it Is irrevocable is why creditors can't get into it under the law.

Yeah. Now, I'm just going to say in summary, many of you have hopefully been a little wowed by this. You may say, why haven't I heard of this before? They've been around. This was what Bill and Melinda Gates did. They did a charitable lead trust. They gave money away to charity. A billion dollars. Warren Buffett matched it, I believe, at the time. And they've got the Bill and Marion Gate, Bill and Melinda Gates foundation, which is part of a charitable giving strategy. These have been around for years.

Is it still the Bill and Melinda Gates foundation, or is it the Melinda go back to her maiden name? I don't know. They have divorced. Right, right.

That's right. I don't know. Don't know. Sorry. You got to watch TMZ on that one. Gotta watch the news, so. But what I'm getting at is these have been around a long time. They're time tested. They're not high risk. The IRS actually hasn't opposed these. Charities, of course, are a huge advocate for these. The wealthy love them. They're a good thing. They're a good thing for the economy. Helps everyone.

So now hurts no one.

Yes. Hurts no one. Helps everyone. Now, what I would say is that again, if you want, we do an initial consult that's paid for an hour. Pay for an hour. Find out if you have a few other questions. And if you move forward, then the cost to do a CRT is around five grand. And we're going to draft it and craft it to your needs and give you models and prepare it and help you in the process, because you got to get an ein. You got to get wallets, you got to get bank accounts. And so there's some procedures in here. And you're going to spend several hours with me and my law clerk and other attorneys in the office getting this thing done. But they're affordable. You save thousands, and they're just really exciting. And you. I don't know. Any final words, Matt?

Yeah, I just think it. It's for those that want to save taxes on the highly appreciated asset. Really consider this. You got a couple hundred thousand or more gains. I think it's kind of fun to think about the charitable component of this and building it, getting a stream of income off of it. You know, your family can get protected, too, down the line with a life insurance trust. I mean, it's, it's. It kind of solves a lot of tax problems, but it does take some tailoring. Like Mark said earlier, it's a little different for everyone. The numbers and figures and how it benefits you kind of depends on your overall situation. So we got to look at that too in the process.

Love it. Well, thanks everybody for watching. If you found this helpful, please give it a like give it a share and we are here every week. If you're. If let me throw this out. If you're watching this video because this could help you, you're going to love our podcast because there's a lot more where that came from. LLC is in S Corps and paying family members and writing off your auto and home office and then not to mention our retirement plan sister podcast. So hopefully this has been a really fun find for many of you to go.

Wow.

A podcast that I can actually understand and enjoy. We do a call in show with live questions every week on Thursday Afternoons on YouTube as well. Please follow click the bell icon and when we go live you're going to get a little ping and you'll learn from others around the country. Sometimes you don't know what questions to ask even and it can be a lot of fun. So yeah.

And if you're just watching the podcast version or listening to the podcast audio on this, do check out the diagrams that Mark has that are on the video. Do you have any articles on this? Do you have.

There's an article. Maybe I'll embed this video in it too.

Yeah, so that'd be great. And of course we appreciate you also giving five stars or liking subscribing to the podcast wherever you're at. It does help get the show out there to other people. We have over 1.7 million downloads of the Main Street Business podcast. So you're not totally weird and nerdy for listening and still listening to a podcast episode on crypto and CRTs. Oh my gosh, did you ever think you'd do that? But thanks for being here. Sign up for the newsletter too. That was my last plea here. Sorry, I was trying to get all the plugs in and this show today is brought to you by. No, I'm just kidding. But sign up for the newsletter@mainstreetbusiness.com you'll get updates on all the stuff we're doing, videos that are coming out, articles we've got, the episodes we've recorded. It's just a great way to catch up on all the content we're getting out there to better help you live the American dream.

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