IRA RESCUE The ECLAT Solution

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IRA RESCUEThe ECLAT Solution

• By Grant Markuson, JD, LLM
• Markuson Law Group, LLC

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The IRA Problem

• Large IRAs are often not consumed prior to
  death
• The combined estate and income taxes can be 65
  or more at death.
• Traditional IRA Rescue Plans utilizing
  insurance are no longer viable.

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Other Taxable Events

• Old annuities
• Sale of a business or real estate
• Large Compensation Issues
• Buy Sell Agreements
• Large Corporate Income Issues

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Inefficient Charitable Giving

• Donations are down, endowments have had huge
  losses, and charities are suffering
• CRTs dont work well in a low interest rate
  environment
• Charities are skeptical of life insurance
  oriented programs
• The only other split interest charitable
  technique that works today is Charitable Lead
  Annuity Trusts

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Traditional Charitable Lead Annuity Trust (CLAT)
Grantor
No Deduction For Grantor!!
1 million contribution
50,000/year
CLAT Assets usually invested in private
corporations, stocks or other appreciating
assets. Non-Grantor Trust
Charity
50,000 deduction Each year
Remaining assets after term of trust, if any.
Heirs
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Problems with Traditional Non-Grantor CLATs

• No charitable deduction upfront
• Remainder interest is subject to appreciation
  assumptions
• Value of remainder interest is uncertain
• Non-Grantor trusts are taxable
• Lifetime trusts raise many uncertainties

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The Enhanced Charitable Lead Annuity Trust E-CLAT

• Trust is a grantor trust
• Current charitable deduction for the present
  value of all future payments to charity
• Trust term is life of grantor
• Payments to charity are smaller annual payments
  with larger payment at end of trust
• Final payment funded with life insurance

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The ECLAT Illustrated
Grantor/ Insured Age 60
1 million contribution
ECLAT Grantor Trust
Heirs
Charity
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The ECLAT Illustrated
Grantor/ Insured Age 60
1 million contribution
ECLAT 100,000 in municipal bonds 900,000
premium for a 3.8 million life insurance policy
We want to buy As much life Insurance as
we Can!!!
Heirs
Charity
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The ECLAT Illustrated
Grantor/ Insured
1 million contribution
ECLAT 100,000 in municipal bonds 900,000
premium for a 3.8 million life insurance policy
5,000 annually 1.5 million at end of term
Heirs
Charity
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The ECLAT Illustrated
Charitable Deduction of 930,478
Grantor/ Insured
1 million contribution
ECLAT 100,000 in municipal bonds 900,000
premium for a 3.8 million life insurance policy
5,000 annually 1.5 million at end of term
Heirs
Charity
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The ECLAT Illustrated
Grantor/ Insured
Charitable Deduction of 930,478
1 million contribution
ECLAT 100,000 in municipal bonds 900,000
premium for a 3.8 million life insurance policy
Remainder of trust 2.3 million remaining from
life insurance, Plus remaining balance of
municipal bonds
5,000 annually 1.5 million at end of term
Heirs
Charity
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The ECLAT Illustrated
Grantor/ Insured
Charitable Deduction of 930,478
1 million contribution
ECLAT 100,000 in municipal bonds 900,000
premium For a 3.8 million life insurance policy
Remainder of trust 2.3 million remaining from
life insurance Plus remaining balance of
municipal bonds
5,000 annually 1.5 million at end of term
Gift tax value Of only 69,522
Heirs
Charity
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ECLAT Benefits

• Large upfront deduction 93930,478
• No income tax problems due to holding only
  municipal bonds and life insurance
• Large remainder interest of at least
  2.3 million, at a gift tax value of only
  69,522
• Certainty as to the payments
• Flexibility of payment stream deduction can be
  raised or lowered depending on need

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ECLAT Specifics

• Upfront deduction is limited to 30 of Adjusted
  Gross Income (AGI)
• Unused deduction can be carried forward for five
  years
• Grantor does not have to be the insured
• Payments are fully funded upfront with a large
  single premium life policy

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Who Can Benefit from the ECLAT?

• All age groups as long as they are insurable
• Anyone who can use a large charitable deduction
• Anyone normally setting up an ILIT
• Anyone who has a charity in their will or trust
• Anyone who wants to maximize gifting to their
  heirs

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Planning Considerations

• Survivorship policies can be used to enhance the
  remainder interest
• Corporations can be the donor and insure key
  employees
• Can be used as a buy-sell or split-dollar
  alternative

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Technical Matters

• The Treasury Regulations specifically allow
  non-linear lead payments
• This is NOT charitable split-dollar the trust is
  the sole owner and beneficiary of the policy
• We created a patent pending algorithm to
  accurately calculate the present value interest

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IRA RESCUEThe ECLAT Solution

• IRS Circular 230 Disclosure
• To ensure compliance with requirements imposed by
  the IRS, we inform you that any U.S. federal tax
  advice contained in this document is not intended
  or written to be used, and cannot be used, for
  the purpose of (i) avoiding penalties under the
  Internal Revenue Code, or (ii) promoting,
  marketing, or recommending to another party any
  transaction or matter that is contained in this
  document.