Real Estate Operations
Charitable Remainder Trust
Frequently Asked Questions
1. What if I Owe Money On the Property, Can I Still Participate in the Pepperdine Charitable Remainder trust (CRT) Program?
YES! You can still participate in Pepperdine's CRT program if you owe money on your property. However as a rule-of-thumb, the debt should not exceed 50% of the fair market value of the property.
2. What Kinds of Properties Qualify?
Any kind of real estate or asset, including stocks and bonds, anywhere in the country. In some cases, real estate located in foreign lands may be eligible. This includes raw (unimproved) land; residential; commercial; industrial; multi-tenant properties; condos etc. However highly appreciated properties make the best candidates for a CRT. The higher the fair market value is compared to the tax basis the better. (Basis is the original cost plus any capital improvements minus depreciation).
3. After I Donate My Property, How Much Do I Get Paid?
The specific amount of each payout depends on a number of factors - the donor's age; the needs and desires of the donors; the type of payout selected such as fixed or variable; the fair market value of the property; the length of time the payout will run; and the payout rate negotiated between the donor and Pepperdine, to name a few. Pepperdine will provide every donor with a written no-obligation proposal spelling out the actual amounts a donor will get paid before any commitment is made. During the planning phase, the CRT program can be custom designed to optimize the benefits to the donors.
4. How Much of a Tax Deduction Do I Get?
The amount of the charitable contribution tax deduction depends on several factors such as the amount of the gift; the ages of the donors; and the payout rate of the trust, to name a few. The exact amount of this deduction will be spelled out in the written proposal the donors receive from Pepperdine. Under the present tax codes, gifts of appreciated real estate qualify for deductions of up to 30% of the donors adjusted gross income while gifts of cash or cash equivalent qualify for up to 50% of the donors adjusted gross income. The deductions may be used in the year of the gift plus 5 years carry forward (6 years total) until the gift is fully used.
5. Does Pepperdine Keep or Sell the Property?
Both. We have a professional in-house management team with experience in managing all types of commercial, industrial, and residential property. We believe we can manage property more efficiently and at a lesser cost by doing it in-house as much as possible. There are situations such as location that may warrant outside management in which case our managers closely supervise the outside managers to insure that they manage the property effectively without overspending. As trustees, we are sensitive to donor desires with regard to holding property, in addition to being committed to get the highest price possible for our trust properties. Naturally, when a property benefits substantially by being managed, or held for next up cycle in the real estate market, we will hold on to it.
6. How Can I Be Assured Pepperdine Won’t Sell My Property Below Its Fair Market Value?
We have a common goal; the more money we get for the property the more we will have for the University when the trust matures, and the happier our donors will be. If there are concerns about this issue, there are specific measures which gives some control to the donors.
7. How Much Does Pepperdine Charge For Its Services?
We do not charge fees for our services in preparing trust documents or for transferring property. In some cases, modest management fees are charged to recover incremental costs; such fees are subject to discussion and will most likely be well below those charged by outside for-profit management companies.
8. How Long Will I Receive Payments From My CRT?
Under IRS codes, donors may elect to receive payments for their lifetimes or a specific term not to exceed 20 years. Typically, if donors elect to receive payments for their lifetime, they will receive the full payment amount until both are deceased. If donors elect to receive payments for a term of years, their estate (heirs) will receive the same full payment until the end of the term, should the donors pass on before that date.
9. How Do You Determine The Value Of The Property? Do I Need An Appraisal?
In most cases, we get several broker price opinions (BPOs) from brokers who are knowledgeable about such properties in the specific location. We will work closely with the donor in developing a consensus regarding value. While Pepperdine does not require an appraisal, the IRS does. Typically, the donors need an appraisal to establish the value of the gift when filing their tax return. In such cases, the IRS requires that the appraisal not be older than 60 days prior to the date of the gift, nor later than the date the donors file their next tax return following the gift. Though the appraisal is the responsibility of the donors, we assist in arranging for the appraisal if desired by the donors.
10. Is There An Age Restriction To Participate In The CRT Program?
No! People of any age are eligible to participate. However, as a rule-of-thumb, the older the participant, the greater the advantage.
11. What About My Children/Heirs?
Though most gifts do not include a special component for heirs, several methods and programs are available to provide benefits for heirs after the lifetimes of the donors. If that is an important factor, we will be happy to discuss these in full with you.
12. How Much Does Pepperdine Take?
The University does not receive any money from the trust until after the trust matures; typically this is at the end of the donors lifetimes or if it is a term of years trust, at the end of the term of years.
13. How Long Does The Process Take?
The process can take as little time as a week in some circumstances but typically takes longer due to the necessity of securing a preliminary title report and performing adequate due-diligence. Transaction time of less than a month is not unusual. If time is of importance, we can usually accommodate you.
14. How Will I Know If The CRT Program Is Good For Me?
Not only will we provide you with a written proposal and a comparison to a sale of the property, but we will recommend that you take the information to your own advisors and seek their advice as well.
15. Okay, I am interested In Receiving A No Obligation Written Proposal. What Do You Need?
We need the following:
- The names of the owners.
- The actual dates of birth of the owners.
- The vesting (how title to the property is held i.e. joint tenants; tenants in common; in a partnership; or a corporation (S Corp. or C Corp.)
- The type of property.
- The location of the property.
- The fair market value of the property.
- The amount of debt (and other liens) against the property.
- The current basis in the property. (Basis is the original cost, plus any capital improvements minus depreciation). You can find the basis on your most recent tax return or ask your tax advisor.
We will need an address, telephone number, fax number and/or E-mail address so that we can forward the information to you. For more information, we suggest you go through our online Charitable Remainder Trust Presentation or click the how it works link on the left hand side of this page to read further. You may also request hard copies of informational brochures and we will be happy to fax or mail them to you.
