Common Questions

About Tax Planning

Why should I use a tax planning trust?

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Tax planning minimizes how much you pay in taxes to help you keep more of your hard-earned money, both for your use over time and to build your wealth for the long term.

I've heard about several different kinds of trusts. Which does Valur offer?

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Lawyers, accountants, and family offices have come up with bespoke trusts and other structures to serve all of their clients' tax- and estate-planning needs. Valur, by contrast, is focused on our customers' most common use case: Minimizing the taxes they have to pay when they sell assets--startup equity, cryptocurrency, and the like--that have appreciated a ton over a short period. For that particular situation, most people choose a Charitable Remainder Trust.

Reduce your taxes on unrealized gains on stocks, real estate and crypto with a Charitable Remainder Trusts

Reduce taxes on already realized income with a grantor Charitable Lead Annuity Trusts

Why Valur

What does Valur do?

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We bring the entire services stack in house: We provide education to help you choose a structure, we generate your legal documents, we offer financial management, and, critically, we handle trust administration.

Read more about our value proposition

How does Valur make money?

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We've integrated the tax mitigation process from end to end, by vertically integrating each component and providing a seamless one-stop solution. We cover the cost of drafting the trust, manage relationships with custodian partners, effect asset transfers and provide the required annual filings. We also calculate and arrange all of your payouts, and we manage the investments and provide additional insight on tax smoothing or tax loss harvesting. In exchange, we charge an annual fee of $1,500 + 0.25% of trust assets for administration + 0.10% of assets for financial management. For example, if you have $1 million of assets in the trust, your annual fee would be $5,000 ($1,500 + 0.35% of $1 million).

One important detail is that the trust pays the annual fees. That means less money out of your pocket, and we can even use high-tax assets from the trust to offset some of the taxes you might incur when you withdraw money. (Note that we don't charge any fees for providing educational materials, generating your trust, or helping you move your assets; we only start collecting fees when you've actually moved your assets into your trust.)

Trust Administration

What happens to my trust and my assets if Valur shuts down?

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Fair question! We're in this for the long haul, but if something goes wrong, you're protected, because we work with established partners at virtually every step of the process. Once your trust is set up, your assets will sit with a "custodian" whose job it is to hold and protect the assets—this is Charles Schwab (for most traditional assets), Anchorage or Gemini (for crypto), or Carta, Shareworks, or Kingdom (for startup equity and other alternative assets). Schwab will own the trust's taxes and other reporting. And we will manage the investments. If Valur ever went out of business, those partners would continue to act in your interest, and all you'd have to do is sign up a new trustee and investment manager.

Read more about our institutional partners

Am Iocked into using Valur forever?

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You are not. We've designed our trusts to preserve maximum flexibility for you. You will be the trustee of your own trust, and you'll appoint us as your "agent." This means that you are giving us the authority to administer the trust on your behalf, but, critically, always subject to your approval. If you don't like how we're doing things, or you just don't want to work with us anymore, you can simply revoke our authority and replace us.

Read more about our institutional partners

Who holds my assets while they're in a Valur trust?

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Once your trust is set up, your assets will sit with a "custodian" whose job it is to hold and protect the assets—this is Charles Schwab (for most traditional assets), Anchorage or Gemini (for crypto), or Kingdom Trust or Millennium Trust (for startup equity and other alternative assets). Schwab will own the trust's taxes and other reporting. And we will manage the investments.

Read more about our institutional partners

Can Valur help with estate planning?

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Our focus right now is on tax planning, which is distinct from end-of-life estate planning. But we have worked with clients in the past to establish various structures that help with taxes and estate planning at the same time--GRATs, SLATs, and CLATs, for instance. If you're interested in these alternative strategies, schedule a time to chat with us at the link below.

Schedule a time to talk with us about alternative planning strategies

Charitable Remainder Trusts

What are the benefits of Charitable Remainder Trusts?

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For most people, the main draw of a Charitable Remainder Trust is that it allows you to defer the taxes you would otherwise pay and reinvest that money when you sell your asset-- as much as 50%, or even more, depending on where you live and how big your gain is. Deferring your taxes -- as opposed to eliminating them forever -- might not seem like much, but the results can be huge: You could save $500,000 in taxes on a $1 million gain if you live in a high-tax state, and those savings will grow tax free for as long as you leave your money in the trust. With the power of tax-free compounding that $500,000 of upfront savings can create $4 million or more over the course of your life.

Read more about Charitable Remainder Trusts

Learn more about Charitable Remainder Trusts and flexible distributions

What compromises will I have to make with a Charitable Remainder Trust?

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Some of the trade-offs are:

- Some amount of money will go to charity at the end of the trust term. In exchange for that donation, you get an up-front charitable deduction you can use to write off income this year, and the assets in your trust can grow tax free.

- There are some liquidity constraints—you can’t pull all of your money out of your trust each year. This is a key trade-off of a CRT: You trade liquidity now for significantly greater returns in the future. But, critically, a CRT is more flexible than other tax-advantaged accounts, like an IRA. In particular, you will have access to a fairly sizeable portion of your trust assets every year — usually between 5 and 11%, depending on what kind of trust you choose.

Why is this allowed? Has the strategy been vetted by professionals?

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When we explain the magic of Charitable Remainder Trusts, some people ask a good and important question: Is this legal? In short, the government has decided that it’s willing to allow people to get tax-free growth in exchange for a promise that they’ll give some money to charity in the future. This is why these particular trusts refer to a “charitable remainder”; a Charitable Remainder Trust is a trust where whatever is left at the end of the term, whether a term of years or lifetimes, —the “remainder”—goes to a charity. Because whatever is left in the trust goes to a tax-exempt charity, the assets grow tax free until they are distributed to you.

This is what makes charitable giving in these structures so powerful: You get to reap the benefits of tax-free growth and an immediate tax deduction, and you and get to give some money to charity.

I have a liquidity event coming up. Is it too late to set up a trust?

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Probably not. Bottom line, to defer your capital gain taxes, you need to get your assets into a trust before you realize those gains--before you sell your shares, cryptocurrency, or other assets. As long as you haven't signed the papers yet--you don't have a contract to sell your business, or your company hasn't entered the pre-IPO lock-up period--there's still time. With that said, we do recommend that you get the process started at least a couple of months in advance so we can be sure to have everything in place in time.

Schedule a time to talk with us

How are trust distributions taxed?

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You are taxed on the distributions you receive from the trust. The tax rate depends on the tax nature of the assets that were sold in the trust. If you sold assets that qualified as long-term capital gains then you would pay long-term capital gains rate when you receive trust distributions. If you have multiple types of income distributed from the trust (e.g. long and short term capital gains) that you are taxed according to the four tier accounting rule.

What are the advantages and disadvantages of the different types of Charitable Remainder Trust, like Standard CRUTs and NIMCRUTs?

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NIMCRUTs are designed for people who (1) are focused on maximizing their long-term gains and (2) are willing to put off withdrawing money from the trust to achieve that goal. Like all Charitable Remainder Trusts, NIMCRUTs allow your assets to grow tax free for the life of the trust in exchange for a promise to donate some of that money to charity at the end. What makes a NIMCRUT special is that, unlike a standard Charitable Remainder Trust, the trust doesn't pay out a set amount of trust assets every year. Instead, you and the trustee have control over when the trust pays out (with some exceptions). By choosing not to take a large payout every year—and, as a result, leaving your money in the trust to grow tax free and compound for longer—you can achieve significantly greater growth.

Standard CRUTs, meanwhile, are generally best for people who want steady, predictable payouts, in exchange for slightly lower returns--still typically greater returns than not doing a trust at all, mind you, but less than with the NIMCRUT. Each year you'll be required to take a payout, regardless of how your assets have performed in the trust.

Read more about the different types of Charitable Remainder Trust

I understand Standard CRUTs and NIMCRUTs, but what is a Flip CRUT?

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Flip CRUTs combine the best of both trusts and allow you to 'flip' from a NIMCRUT to a standard CRUT after a predetermined event, such as the sale of a non-marketable asset. After that flip happens, unlike the NIMCRUT, which allows some flexibility in the timing of payments, a Flip CRUT has to pay the beneficiary a set percentage of trust assets every year. Because these payouts are required, you don't have the freedom to delay payouts and maximize your tax deferral and compounding. This is a commonly used structure when funding the trust with an illiquid asset.

Read more about Flip CRUTs

What are the advantages and disadvantages of lifetime and term trusts?

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The advantages of a lifetime trust are simple: Trusts and tax planning are all about the magic of long-term tax deferral and compound growth. The longer your money grows tax free, the bigger your gains, and lifetime trusts--by definition--give you more time to let that happen. Because you have your whole life to spend down the trust's assets, you have more flexibility to invest in assets that might not ripen for a while--say angel or other venture investments that could be illiquid for a decade. The main disadvantage of a lifetime trust is that you might not be able to leave your money to another beneficiary if something happens to you. (The IRS limits who can do lifetime trusts based on two lives, and if you and your secondary beneficiary--say, your partner or kid--are younger than about 40, the two-life strategy won't be available.) All that being said, we work with various partners to work around these limitations--for example, by setting you up with a life insurance policy to cover the value of the trust assets should the worst happen.

Read more about these tradeoffs

What happens if I need my money after I've put it into a Charitable Remainder Trust?

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Withdrawals work differently depending on whether you choose a NIMCRUT or a Standard CRUT, but the bottom line is that you'll have access to some of your money immediately, and the amount available to you will grow every year as long as your assets keep growing. With a Standard CRUT, you can withdraw a set percentage of the trust's assets--11% in a 20-year trust, around 6% in a lifetime trust for a person in their 30s--every year. With a NIMCRUT, you have the option--but not the obligation--to pull that same percentage out every year. As a rule of thumb, then, with a NIMCRUT, you'll have access to between 5% and 10% of your trust assets for every year the trust has been in operation. So if you put assets into the trust and sell for $1 million, you'd likely be able to access between $50,000 and $100,000 per year in the first few years, and more as the value of the assets grows.

Learn more about the flexibility of Charitable Remainder Trust payouts

How do distributions work? How much can I withdraw every year?

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With a NIMCRUT, you are have a lot of control over the size and timing of your distributions. NIMCRUTs pay the beneficiary (you, usually) the lower of the chosen payout percentage or the trust's net income—that is, the trust's profits from selling trust assets. So if you decide that you want to defer your payouts in a given year, you can choose not to sell any of your assets so you won't realize any net income. In addition, you don't lose the right to withdraw that year's payout. Critically, if the trust doesn't earn enough to cover the annual distribution, the difference goes into what is called a 'make-up account,' which operates kind of like an accounts receivable. Every year that you don't pay out what you're entitled to, the make-up account grows. Then, when you decide you're ready to pull some money out, you can sell assets, and the trust will pay out the previously accrued amount in the make up provision.

With a Standard CRUT, you are required to withdraw a set percentage of the trust's assets every year, no matter how much income the trust makes or how the assets perform. You're giving up flexibility--and some returns--for consistency of payouts. This is really a matter of deciding what your goals are. Oftentimes this is a preferred approach for those looking to have a set level of income annually to support living expenses or other endeavors.

Read more about distributions and other liquidity questions

Can I include my kids or my partner as beneficiaries of a tax planning trust?

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It depends on which kind of trust you choose: lifetime or term.

If you choose a term trust, you have total control over your beneficiaries--you can decide that, at the end of the term of the trust (or if something happens to you), your partner gets the trust's income and assets, or you can set it up so the money goes to your kids, or to a separate trust for your kids' benefit if you're not sure they'll be ready to take ownership of that much money.

If you choose a lifetime trust, it depends on how old you and the other beneficiaries. You can't setup a lifetime Charitable Remainder Unitrust with a beneficiary under the age of 27.5 or name joint beneficiaries if both are under 39 years old.

With all of this said, we work with various partners to get around these limitations--for example, by setting you up with a life insurance policy that will pay out to your children or your partner at the end of your life.

What kind of charitable deduction do I get with a Charitable Remainder Trust?

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If you gift cash your charitable deduction is up to to 60% of your Adjusted Gross Income (AGI). If funded with appreciated stocks you can write off up to 30% of your AGI in a given year. You can carry forward/use these charitable deductions for 5 years so you don’t have to use it all up front.

Charitable Giving with CRTs

Can I change the charity that I plan to give my remainder to?

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The short answer is Yes! You can designate the charity of your choice and change it any time, up until the point the charity is supposed to receive the assets.

Can I name my own Donor Advised Fund or Family Foundation as the charitable beneficiary?

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Yes! In fact that's our default strategy. We set up a Donor Advised Fund in your name, which allows you to control the capital once you reach the end of the trust. You're able to designate investment strategy, which charities receive the funds and at the pace that you choose. Family Foundations offer similar benefits but are less flexible and tend to be more expensive to maintain.

Charitable Lead Trusts

How does a Charitable Lead Trust compare to a Charitable Remainder Trust?

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Fundamentally, they operate with the same goal in mind: tax deferral, but a Charitable Lead Trust is kind of like a Charitable Remainder Trust in reverse. With a Charitable Lead Trust, the charity receives payments each year and the remainder is reserved at the end for you. The other big differences are that a Charitable Lead Trust gives you a much more significant charitable deduction up front (up to 100% of the donated value), but the trust is not tax exempt. They are tools for different situations.

Read more about Charitable Lead Trusts

When does it make sense to use a CLAT versus a CRUT?

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A CLAT offers tax deferral strategy that can help you reduce or eliminate your immediate tax bill on ordinary income, unexercised options, crypto or startup shares that you’ve "already" sold. Think of this as planning after the fact. The way this works is that you put the resulting proceeds into the CLAT, you make a small donation every year, and then you make a larger donation while receiving a massive taxable distribution in the final year of the trust. You’ve basically backloaded your tax obligation, but, because of the way the IRS does the math, you get a huge deduction today (potentially up to 100%), and those tax savings will grow and compound for years. So this is a way to completely offset the tax hit you’d otherwise be taking from your big win.

Still have questions?

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