Flip Charitable Remainder Trusts

A flip trust is a gift plan described in treasury regulations that allows you to provide income to yourself or others for life or a term of years while making a generous gift to Whitman College.

As a flip trust donor, you irrevocably transfer real estate (other assets, such as cash or securities can also be used), to a trustee of your choice (for example, Whitman College Board of Trustees). During the trust's term, the trustee markets the real estate for sale and makes payments each year to one or more income beneficiaries named by you in the amount of income earned by the trust (rental profit minus expenses).

When the real estate is sold, the trust flips and the trustee pays the beneficiaries the fixed percentage the unitrust is required to distribute, regardless of the income earned by the trust. This "flip" in how payment amounts are determined allows the trustee to invest the assets for growth or for income after the flip without limiting income payments.

When the unitrust term ends, the unitrust's principal passes to Whitman College, to be used for the purpose you designate.

EXAMPLE:

If you, age 72, irrevocably transfer $150,000 in property, with a cost basis of $100,000, to a 5% flip unitrust that makes payments for your lifetime benefit, you will qualify for a federal income tax deduction of approximately $85,208. Your deduction may vary modestly depending on the timing of your gift. Note that deductions for this and other gifts of long-term appreciated property will be limited to 30% of your adjusted gross income. You may, if necessary, take unused deductions of this kind over the next five years, subject to the same 30% limitation.

Your designated income beneficiary will receive payments in quarterly installments for life. In the first year, these payments will be the income earned by the unitrust, (rental profits minus expenses). Payments in future years will vary with the value of the unitrust. Your entire gift property will be available for reinvestment, free of capital gains tax. If you were to sell and reinvest this property yourself, you would owe tax on $50,000 of capital gain and your estate may enjoy reduced probate costs and estate taxes. You will provide generous support of Whitman College.

Kaspick & Company

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