Using the CRUT Calculator and Illustrator
Audience:
Financial planners, estate planning attorneys, accountants, and interested other individuals
Purpose: There are many CRT calculators freely available on the internet, some of them are behind a paywall, but none of them explain or demonstrate dynamically how changing the input parameters affects the results for the initial (non-charitable) beneficiaries and the remainder beneficiaries (charity). We accomplish this by having input sliders that dynamically update the size and composition of a pie chart.
Optimization: Optimization, keeping everything else constant, traditionally means adjusting the payout rate for the initial noncharitable beneficiaries so that the trust meets the minimum IRS criteria to be considered charitable. We have this optimization algorithm.
New metric CRT Total Economic Benefit: In addition to the usual calculation results we define CRT Total Economic Benefit as the sum of the expected income tax savings at inception invested, the total payouts, and the remainder value of the trust at the end of its duration. This is a useful benchmark of total benefit for all stakeholders that can be optimized. A rising tide lifts all boats, and maximizing total economic benefit will also usually benefit the initial (non-charitable beneficiaries) the most, assuming that they have invested their income tax savings over the same duration as the CRT.
How to use:
Basic Analysis:
Start with the initial state, and show clients how increasing the initial fund value (everything else being kept the same) affects the size of the pie but not the composition.
Jump to base growth rate and show how higher investment returns increase the size but do not change the composition of the pie.
Keeping everything else the same, show how changing the payout rate is constrained by the 10% rule. Show how the composition of the pie changes.
Show how the payout rate can be increased when the duration in years is decreased. Appreciate how the composition of the pie changes.
Show how a higher discount rate increases the possible tax deduction, changes the composition of the pie, and increase the Total Economic Benefit.
Show how the marginal tax rate can affect the composition of the pie, and to a lesser extent, the size of the pie.
If the changes in the pie chart are subtle, refer to the typed dollar amounts right below it.
Optimization:
You have the following radio buttons:
- No optimization, the default, but select this when another radio button is on.
- Optimize for payout. The usual optimization goal. When selected, don’t forget to run by pushing “Calculate Optimization”.
- Optimize for Total Economic Benefit. Select and run. Don’t forget to reset to no optimization.
With simulation:
Use when you have a scenario of specific interest to demonstrate to clients how ‘Individual results may vary’. When the box is checked, the app will calculate 2,000 different iterations with different growth rates over the years. This will take a few seconds. Scroll down to see the results.
Do not forget to uncheck the simulation box when done, otherwise, the responsiveness of the sliders is impaired, and the app may look unresponsive.
Disclaimer:
For Illustration Only. Not to be construed as legal, financial or tax advice. Use with your advisor.
Comments:
We want to make this CRUT Calculator and Illustrator better, please email suggestions to info@wealthcarelawyer.com
Charitable Remainder Trusts: How the IRS 7520 Rate Determines your Income Tax Savings
A calculator that is easier to use for clients:
Charitable Remainder Unitrust Calculator with Monte Carlo Simulation
