Today, we’ll tell you how to use a trust to wipe out up to 30 percent of your adjusted gross income for this year. Learn what a charitable lead trust is and how it functions, as well as how you can keep the control over your asset even after moving it into the charitable trust.
What You Will Learn About How to Wipe Out Up to 30% of Your Adjusted Gross Income THIS Year:
- Why a charitable lead trust is an epic trust
- How it functions
- How moving the asset into the charitable lead trust affects the ownership
- What makes it charitable
- Can you still get the cash flow
- When and how you can sell the property
- How to receive the free book on Trump’s new tax plan
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- Also, check these out:
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Speaker 1: This is Theriault Media.
Did you know that up to 50 percent of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn’t it about time you play on a level playing field with the wealthiest one percent? Now you can. Tim Berry, attorney-at-law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what’s rightfully yours. It’s time for Tax Hacker Tuesday.
Matt Theriault: Hello, and welcome to The Epic Real Estate Investing Show. It is Tax Hacker Tuesday with my attorney and friend, Mr. Tim Berry. On Mondays here at Epic, we show you new and creative ways, as well as time-honored ways, of making money using real estate. On Tuesdays, we show you how to keep all of that cash. So welcome, Tim.
Tim Berry: Thanks, Matt. Thanks for having me.
Matt: Yup, it’s always a pleasure. It’s one of my favorite days of the week, where I just don’t have to think too much because I just let you do the thinking.
Tim: Oh, I thought it was taco Tuesdays, that’s why you liked it.
Matt: Yes. So we’ve got taco Tuesdays, and Tax Hacker Tuesdays, we had one upper Tuesdays a couple weeks ago. Tuesday is just the best day for everything.
Tim: It is.
Matt: We’ve been talking about, over the last few episodes, different things that you can do during the fourth quarter to minimize your tax liability. I know you got another hot one for us today, so what do you get, Tim?
Tim: What I have for you today is a fantastic trust, we’ve talked about this before, that you can use to wipe out up to 30 percent of your adjusted gross income for the year. And the cool thing is, about this trust is, you’ve got until 11:59 at night on December 31st, just to sign the paperwork and set it up, and you’ll still get the full tax deduction for the year of, once again, up to 30 percent of your adjusted gross income.
Matt: Wow, that’s a biggie.
Tim: Yeah, no, I absolutely love this thing. And now I love this thing, and I’m excited by it, but now let me turn off the audience, whenever I say what the name of this trust is. You ready?
Matt: Mm-hmm (affirmative).
Tim: It’s something called a charitable lead trust. A charitable lead trust. And I say this is going to turn off the audience because even though a lot of people talk a good game, as soon as you mention anything with the word charitable in it, the interest just plummets. Everyone says, “Oh no, well, charity begins at home, I want to keep the money in the family, [inaudible 00:02:21].” Hey, that’s cool. I get it.
Matt: Probably the bleeding hearts, all the hearts go cold.
Tim: They do. All the hearts go cold. Even the blood that was oozing out of those hearts, is frozen. It’s caught in the valves.
Tim: Yeah, so yeah, that’s typically what happens, seriously. So what we got to do is, the benefits of the lead trust are astounding, if you can outperform 10 percent on an annual basis on your money. So once again, this lead trust, really cool thing, and Matt, I might have to re-create the magic from last week. Last week, what’d we call those tax-exempt trusts?
Matt: The epic trust.
Tim: The epic trust.
Tim: So, we might want to call these things the epic trust, because they truly are epic, if you can outperform that 10 percent.
Matt: Ah, epic trust on steroids.
Tim: Epic trust on steroids. I always look at the initials of things, so EPOS, it would be the EPOS trust.
Matt: The EPOS trust.
Tim: There you go.
Matt: All right.
Tim: And let me ramble on a little bit more about these things, and why they are so cool.
What you do is, whenever you set up the trust, you have to move assets equal to the value of what you want for the tax deduction. So let’s say you made 500,000 bucks for the year, and you want to get your 30 percent tax deduction. So you got to move assets worth $150,000 into the trust.
And notice, the weasel word I’m using here. I’m not saying cash, you got to move cash. You got to move assets. So if you got a real estate property that’s worth 150, cool, move it in there. If you’ve got at 30 percent interest in a property that’s worth 450, and … Is that 150 30 percent times … no, I was wrong. If you got a property worth 500,000 and you want to move a 30 percent interest of that property in there, cool, you can do that.
Matt: Just a portion of it?
Tim: Yeah, just a portion. If you got a promissory note out there, that you loaned someone some money of 150, and you want to move the promissory note in there, cool, you can do that. So this doesn’t even have to be funded with cash. You can fund this with assets you already have.
Matt: Okay, so if you take this asset and move it into the charitable lead trust, how does that affect ownership?
Tim: The trust is now the owner of that asset, but the cool thing is, you’re the trustee. You’re the one that gets to make all decisions for it.
So let’s say you transferred over a piece of property, some real estate, a single-family residence. Okay, cool. You, as trustee, can sell that property and then the assets stay inside the trust, and now you can re-invest that property in the way that you see fit.
Matt: Mm-hmm (affirmative).
Tim: The cool thing is, you get the tax deduction this year, for 150,000, but the trust is probably only going to have to distribute, I don’t know the numbers off the top of my head, probably about 300 bucks for this year. So literally, you get a tax deduction of 150 if you’re in a 40 percent state and federal tax bracket, that’s $60,000 cash in your pocket and yet you only have to pay out to your charity or charities, I don’t know 300 bucks for this year.
And then next year, that’s going to increase by 20 percent, so then next year, you’re going to pay out 360 bucks. And then next year, you’re going to pay out 420. And yet, you got that tax deduction in year one of 60,000. If you reinvest that tax deduction, 60,000, at let’s say 10 percent, that’s generating $6,000 a year of income, more than enough to pay off these measly payments you got to make.
Matt: Okay, all right. I get it, I think. Where does the charitable part come in?
Tim: The charitable part is, you’re making payments to your favorite charity or charities over the next, let’s say, 20 or 30 years through this trust. So, they get their whopping 300 bucks this year. They get their whopping 360 next year.
Matt, you’re probably thinking, in the back of your mind, “Well, gosh, even a bleeding heart liberal could like this, because this isn’t overly charitably inclined, they’re really getting pennies on the dollar.” To a certain extent, that’s true, but if you want to ramp up the payments, by all means. We’ve got some clients who pre-pay the next five years of payments. So they’ll actually give their charity, gosh, 5,000, 6,000, 7,000 dollars, right up front. If you’re someone who tithes, you do give your 10 percent, cool. Let’s front-end load all those 10 percents for the next ten years, into this trust. You’re going to give the money out anyway, why not get a deduction right now, today, for all those payments?
Matt: Got it. So does the charity, like say it was a house or an investment property, does the charity own the house now?
Tim: No, the trust owns the house. The charity just gets income generated by the house.
Matt: Okay, and it could be as little as that 300 bucks or whatever?
Tim: It could be as little as that 300 bucks.
Matt: And then you get whatever’s left over?
Tim: And you get whatever’s left over.
Matt: Okay, now it’s starting to make sense.
Tim: Yeah, it’s a cumbersome subject, a little bit convoluted and confusing, but just go to the website, ask for more info, we’re more than happy to share with you more info. Because quite honestly, these things are probably one of the biggest, greatest tax savings tools out there. And not only is it a great tax savings tool, but it’s also going to ultimately help out the community, so why not utilize it?
Matt: No, okay. I like it. I was thinking, like, here’s how you minimize your tax liability, give all your stuff away.
Tim: There you go. The more you give, the better you get, is that the right phrase?
Matt: Got it.
Tim: I have those … grammar.
Matt: But you could still sell the property, and you still get the cash flow from the property, you’re just giving a portion to charity every year?
Tim: That’s all you’re doing, giving a portion to charity each year.
Matt: Now it’s … sounds much simpler that way.
Tim: Yeah, well you’re the marketing guy, I’m just the dweeb.
Matt: Well, we have to make you sound smart on here, so [inaudible 00:08:07].
Tim: It’s a tough one to do, too, very tough.
Matt: I know, I’m working hard over here. There’s sweat running down my face. Super.
Matt: All right, well, that’s good. If you move this $150,000 asset in there, took that $60,000 deduction, right?
Tim: Mm-hmm (affirmative).
Matt: And is there a limit on when I can sell that property now?
Tim: Man, I was afraid you were going to ask that question. No, there are no limits.
Matt: So I could sell it the next year?
Tim: You could sell it the next year, you could sell it the next day, you could sell it the next second. There’s no-
Matt: And I don’t have to give that deduction back?
Tim: You don’t have to give that deduction back.
Matt: I think we’ll leave this in. It sounds even better.
Tim: No, it’s a fantastic tool. The challenge with the charitable lead trust and the reason why more people don’t use them is they’re kind of hard to understand. It takes a lot of math to look at the numbers and everything. But once you understand them, they’re probably one of the greatest tools out there.
Matt: Super, well, that’s why we have you, so you can explain that to people.
Tim: Hopefully, I can explain. If not, just bamboozle them, you know?
Matt: Perfect. So whenever you’re ready to have Tim customize a Tax Hacker Blueprint for you, of if you want to talk about this charitable lead trust, go to taxhacker.com, answer a few questions about your situation, tell Tim what you’d like to have happened, and his team will take it from there. Then, they’ll even give you a copy of his free book, all around Trump’s new tax plan, specifically, what the press isn’t telling you. We’re going to have to have a new book for the New Year, though, Tim.
Tim: Okay, so what should we make it? What’s a good, exciting subject for everybody?
Matt: I don’t know, I guess we’ll wait until after … by the time you’re hearing this, the elections have already passed.
Tim: How about the new year, new opportunities?
Matt: New year, new opportunities, something like that. I think so.
Tim: There we go.
Matt: All right, perfect. All righty, go to taxhacker.com and get everything you’re looking for there, and we’ll see you right here, next week. Take care.
Tim: You too, man. Bye.
Speaker 1: That’s it for today, as we dream of a tax system that works just for you. But until then, you have Tim Barry. See you next Tuesday, for another episode of Tax Hacker Tuesday.