You can avoid probate with trusts, but it’s news to me that you can avoid estate taxes.
The standard trick is to buy a stock at $10 when you are young (or receive it a stock option) let it appreciate to $100, don’t sell it, but rather borrow against it, gift it to your heirs.
When you die, the cost basis jumps up from $10 to $100 (or whatever it is on the day you die), saving your estate the taxes on the $90. This has become controversial and there are calls to reform the step-up in cost basis after death. But this is something else.
ETA: Oh yeah. Charitable remainder trusts. I don’t know about those: I just know the name. Also, erm, irrecoverable trusts. I don’t know about those either. Hrm.
That won’t really do the trick. Your standard CRT gives you a tax deduction when you create and fund the trust, and it can give your heirs income from the trust, but the creation of a CRT with non-spousal heirs as the income beneficiary(ies) will affect your gift tax exclusion. Any and all income your heirs receive is taxed as income (whether regular or capital gains).
It’s been a long time since I dealt with this professionally and my work was tangential to the estate attorneys but what I will say is that effective estate planning at the time was intended to greatly reduce the amount of estate taxes on estates that otherwise would have been highly taxed. Gift and Estate taxes weren’t reduced quite to zero but they were minimized from the pain threshold to the merely irritating level.
As I recall, CRTs were key to several estate planning strategies. The gist, as I recall, was that you put a bunch of money in trust. You name a charity as the primary beneficiary, which gets the first priority on a stream of cash payments from the trust. The residual beneficiary gets whatever is left after the charity collects its part (and this is the person that the grantor really want to get the money). The trick was to set the present value of the cash flows to the charity (as discounted by the appropriate IRS-determined interest rate) to be almost equal to the amount contributed to the trust. The remainder would go to the residual beneficiary. So, the donor could recognize a charitable deduction equal to nearly the full value of the capital contributed to the trust, with only a minimal hit to the unified credit. The whole amount would grow at some rate of return and as long as that rate of return exceeded the IRS rate, the growth in the portfolio could provide a considerable amount to the residual beneficiaries. Those IRS rates were generally low and not that great a hurdle. Yes, the money distributed to the residual beneficiary would all be taxable (and worse than you are saying, I thought it was all ordinary income, but maybe I am mistaken) but, in essence, this was only the income portion of the trust in any event, which it seems fair to tax. And structuring it this way would eliminate the estate tax, which could have been up to 55% of the estate. At my firm, people were advised to do this only if they intended to give money to charity anyway since the residual cash flows weren’t guaranteed but people used this technique or one like it to pass billions of dollars estate tax free.
So what you’re describing is a Charitable Lead Trust (which is absolutely a charitable remainder trust), which I have less experience with (I work for a company that administers CRTs, so this is my wheelhouse - except for CLTs or anything to do with Pennsylvania (don’t ask)). I’ve never seen a CRT big enough to think “ah, this is trying to bypass the $14m gift tax exclusion”, but I also doubt a charitable trust would be the sole vehicle to do that in. I’m going to dig into CLTs a bit this week to get more info - thanks for bringing that up!
If I recall correctly, Grantor Retained Annuity Trusts were the vehicle for passing the largest estates. It basically works the same way as the Charitable Lead Trust (a term I had forgotten and that I thank you for reminding me of), except instead of the charity getting the initial cash flows, you give them to yourself. The only amount that hits the unified credit is the difference between the present value of the cash flows that the grantor retains and the residual that goes to the beneficiary. The tricks here are: (1) fund the account when stock prices are low and (2) be sure to beat the IRS rate. It also helps to have the residual pay out far into the future so the trust has the longest time period to compound and grow. These are the ones that transferred billions estate tax free.
I’d be torn between reporting it as income and avoiding the hassle by just keeping it in my closet, occasionally rolling around in it a la Scrooge McDuck. Of course, the second option greatly limits the range of things you can spend it on without attracting unwanted attention. I’d probably end up with an extremely impressive collection of fine Scotch whiskys.
Another thought about this: if said investigation turns up an online discussion of this sort anywhere in the receipient’s background, and said discussion started before the payments, recipient is screwed. Especially if they’re in any position for which bribery might be relevant.
Ok, let’s say a gang of billionaires send $5000/wk to a legislator. Classic ratfuck. What should be done?
Legislator needs to get legal assistance immediately, possibly through their employer. Luckily they tend to be well connected enough to get good advice. I say all disclosure laws should be obeyed, all funds put into escrow, and the FBI should be notified on the theory that an unknown party may be trying to pay a bribe. At the proper time, the public should be informed that all funds are going into escrow and will stay there, “Until the FBI completes its investigation.” At the proper time, all funds will go to charity, possibly minus expenses, possibly minus government forfeiture.
Speaking generally, Pawn needs to hire a lawyer as soon as practicable. Which suggests a strategy for our mastermind(s). Assume now that the donee is not a politician. Start sending a lower amount, say $500/wk, then slowly build up every month. That and procrastination could lead to delays in hiring a lawyer, which could lead to behaviors that juries find suspicious. What to do?
Assume the pawn is innocent. I say Pawn needs to start a diary about this bizarre situation and document everything to the extent possible. Then contact a lawyer when gifts total more than, say, $19,000, maybe less. Figure out what the trigger point is, write it down, and plan for the contingency of paying out legal fees.
I wonder whether someone could pen 2 TV shows about the OP. The Twilight Zone version would take the perspective of the pawn. The Mission Impossible version would take the perspective of the perp.
ETA: No, 3 shows! We need a police procedural as well.
ETA2: Then a movie version in the style of Rashômon.
ETA3: Then a musical!
Put the money in the same place and in the same way as all the other under-the-table cash the legislator has been getting for years or decades from other folks?
Ref the NJ pol w a kitchen freezer full of gold bars.
With some exceptions, gifts of cash in paper bags to politicians became much rarer after 1974ish. There are many workarounds of course. Smart high profile politicos opt for legal routes.
Generally so, but not if the gift is anonymous and over $50, at least at the federal level. Cash gifts are limited to $100 regardless.
That’s for hard money, party money, and PAC money. I’m not sure about super PACs and dark money 501c(3)s.
