When hiring professionals to manage assets and recommend tax-saving strategies, it's crucial that they possess specific expertise in the transactions they are handling. A single botched transaction, such as with a charitable remainder annuity trust, can bring unwanted attention from the IRS and create unnecessary risks.
Mary’s previous advisor, in collaboration with his personal CPA, made several missteps in recommending the transfer of a rental property into a charitable remainder annuity trust. They assured Mary that selling the property through this method would allow her to "avoid taxes," but the reality was far more complex. The advisor failed to ensure that Mary understood the workings of CRATs, including the distribution process and tax reporting obligations.
After years of working with her previous advisor, Mary noticed a sudden decline in the service she had come to expect. The situation escalated when Mary refused to purchase an annuity late in life that would have tied up the majority of her liquid assets. As a result, the advisor decided to fire her as a client, leaving Mary in a vulnerable position with unresolved financial issues.
Due to the improper handling of the CRAT, it wasn’t long before the IRS started requesting tax filings. There are taxable events involved at various stages of establishing and maintaining a CRAT, and Mary’s situation was no exception. The lack of proper guidance and execution by her previous advisor led to these complications, further exacerbating her financial stress.
Fortunately, with the help of new professionals, the entire transaction was unwound, and the IRS back taxes were cleaned up. Mary was able to move forward with a sound, long-term financial plan, free from the missteps of the past. This experience highlights the importance of working with knowledgeable professionals who prioritize the client's best interests.
Here are some of the ways we guide clients in making critical decisions and taking control of your finances:
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