In Hard Times, High Net Worth Individuals Might Want to Sell -- but Are Missing Opportunities to Turn Collectibles and Hard Assets Into Big Estate Payouts, Big Donations and Lower Tax Bills

NEW YORK, NY--(Marketwire - January 21, 2009) - In hard economic times, high net worth individuals might want to sell art, antiques and other valuable tangible assets. But they are missing opportunities to transform their collectibles into bigger estate payouts, lower tax bills and big charitable donations to their favorite charities.

Some will sell their assets outright -- and will pay heavy taxes. But if instead they sold the asset and housed the proceeds in a Charitable Remainder Unitrust (CRUT) -- an often-overlooked vehicle -- collectors and other high net worth individuals could avoid tax on the sale, generate ongoing income that can be used to produce more wealth and minimize the impact of estate taxes. And they could also benefit a charity, which later receives the proceeds of the sale as a donation.

"Charitable Remainder Unitrusts are too often overlooked, and as a result, high net worth individuals who own art, collectibles and other tangible assets are missing the chance to reduce their taxes, maximize their wealth and help a charity," said Michael Bekas, CPA, a Tax partner at Marks Paneth & Shron LLP (MP&S), a leading New York area accounting firm.

CRUTs Are Straightforward but Often Overlooked -- and Sellers Pay Too Much Tax

"There's nothing exotic about a CRUT -- it uses well known provisions of the tax code," Mr. Bekas said. "But accountants and financial advisors often do not take advantage of it. The result is that owners who sell their hard assets pay too much tax and charities don't get all the donations they could."

How CRUTs Work -- and Who Benefits

Mr. Bekas is the author of a white paper, "Charitable Remainder Unitrusts: A Must-Consider Wealth Maximization Vehicle for Owners of Hard Assets." In an interview, Mr. Bekas can discuss:

• How CRUTs Work: In a CRUT, when you sell an asset, the proceeds don't go to you -- they go into a trust. The proceeds are tax-exempt. The trust grows and generates income -- you have to take a distribution, usually 5 percent a year. That amount is taxed, but you get to reinvest it -- including in a life insurance policy, held by a trust, with a death benefit for your heirs. When you die, your invested income and your insurance money go to your estate -- with favorable tax treatment. The original proceeds of the sale -- which have grown over time -- are donated to a charity you specify.



• The Role of Insurance: The strategic use of life insurance is the key to success when creating a CRUT. The taxable income, net of income taxes, produced by the CRUT can -- and should -- be used to purchase a life insurance policy. If that policy is held by a trust, rather than by an individual, the death benefit is not subject to estate taxes. Heirs will receive much more than they would in a conventional asset sale.



• With and Without CRUTs -- The Major Difference: If a collector sells a painting for $1 million, he pays taxes on the sale and estate taxes on the remaining proceeds. If he dies 17 years after the sale (at age 82 -- the life expectancy of a 65 year-old), his estate gets $884,000, including the results of investing the after-tax proceeds of the sale. But if he houses the proceeds in a CRUT, the sale isn't taxed. And if he uses the income from the trust to buy life insurance owned by a trust, the death benefit isn't subject to estate tax. His heirs get $1.2 million -- roughly $300,000 more than if he'd sold the painting outright. And a charity he designates gets the original sales proceeds and the dividends and interest they've generated -- a total of $1.4 million. The donation would never have been possible if the painting had been sold outright.



• Alternatives to CRUTs and Their Advantages: CRUTs are the best known form of charitable remainder trust, but there are others. A Charitable Remainder Annuity Trust (CRAT) produces fixed annual income. And a Net Income Makeup CRUT (NIMCRUT) allows one to defer most income until a later time -- for example, after retirement -- when one might be in a lower tax bracket. It functions like a retirement plan.



• How to Avoid Risk When Creating a CRUT: "CRUTs are provided for in the tax code and don't represent a risk," Mr. Bekas said. "But it's possible to create risk -- by cutting corners. Trusts require documents drawn up by attorneys who are knowledgeable about the Internal Revenue Regulations. Following the right procedures makes a successful outcome more likely."



• Who Should Take Advantage of CRUTs: CRUTs can provide real value to private asset holders, financial and art professionals. Below are some of the audiences that should take advantage of CRUTs.
  
  
  • Art and antique collectors should consider Charitable Remainder Unitrusts -- as should any high net worth individual who owns a significant tangible asset that might benefit from a tax-advantaged sale.
  
  
  
  • Anyone who is interested in making a major donation to a charity, cause or institution might want to consider a CRUT as an opportunity to unlock value in an asset and transform it into a charitable gift.
  
  
  
  • Financial advisors and insurance brokers should be knowledgeable about the advantage that CRUTs can offer their clients.
  
  
  
  • Art dealers and auction houses should consider partnering with accounting firms to structure CRUTs as part of a package of services -- as should the Capital Development offices of large nonprofit organizations.

"More people -- high net worth individuals but also tax professionals, financial planners and insurance brokers -- need to be aware that CRUTs are a mechanism that can create win-win-win scenarios for the asset seller, the estate, and the charitable institution," Mr. Bekas said.

For more information, to schedule an interview with Michael Bekas, or to receive a copy of his white paper contact Adria Greenberg of Sommerfield Communications at (212) 255-8386 or adria@sommerfield.com.

Or, to view the white paper, please click here: "Charitable Remainder Unitrusts: A Must-Consider Wealth Maximization Vehicle for Owners of Hard Assets."

About Marks Paneth & Shron

Marks Paneth & Shron LLP (MP&S) is an accounting firm with nearly 500 people, approximately 70 of whom are partners and principals. The firm provides businesses with a full range of auditing, accounting and tax services, as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high net worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services and energy clients.

The firm also provides information technology consulting services through its Tailored Technologies subsidiary. In addition, its membership in JHI, the leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world.

Marks Paneth & Shron, whose origins date back to 1907, is among the 30 largest accounting firms in the U.S., and the 15th largest in the New York area. Additional offices are in Westchester, Long Island and the Cayman Islands. For more information, please visit www.markspaneth.com.

Contact Information: Contact: Adria Greenberg Sommerfield Communications, Inc. 212-255-8386 adria@sommerfield.com