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First off I will give a short summary of the Capital Gains Elimination Trust (CGET). Then, I will provide some details about how it works and conclude with a case study as an example of how someone might use this.

Summary:

The Capital Gain

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

s Elimination Trust is better known as a Charitable Remainder Trust. How this works is one would deposit highly appreciated assets into the CGET. The trust sells the assets and pays no capital gains tax. You then get to withdraw an income

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

each year from the trust. The withdrawal can be earnings and principal.

Donors can be the trustees of the trust and decide how to invest the trust’s assets. In addition, they get an income tax deduction for their contribution to the trust

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

hat is based on the term of the trust, the size of the contribution, the distribution rate, and the assumed earnings on the trust.

At this point, the assets are now removed from their estate, they have paid no tax on the capital gains, and t

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

hey have a stream of income. The IRS requires at least 10% of the present value to be projected to go to a charity of your choice.

If someone wanted the money to be left to family, they could use part of the money they would have paid taxes

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

on and buy a life insurance policy outside of their estate. Then, their children will still receive as much or more inheritance money, free of income and estate taxes.

A CGET can be used with real estate, stocks, or any other asset with cap

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

ital gains, and must be unencumbered with debt.

Details:

CGETs are subject to a maze of law and regulation. The failure of a CGET to meet all requirements can result in a trust being disqualified as a Charitable Remainder Trust, with negat

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ive income, gift, and federal estate tax consequences. The loss of charitable status would also defeat a donor’s charitable intent.

Some of these requirements involve numerical tests, several of which have long been a part of the qualifying

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

conditions for CRTs. The Taxpayer Relief Act of 1997 (TRA 97).

Pre-TRA 97

5% probability test (this applies only to charitable remainder annuity trusts) 5% minimum payment test TRA act of 1997 50% payout limitation test 10% minimum

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

charitable benefit

Relief Provisions

TRA 97 provided several relief provisions for trusts which would meet all CRT requirements, except the 10% minimum charitable benefit requirement. The law provides that a trust may be declared void ab

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

nitio (from the beginning). Under this option, no charitable tax deduction is permitted to the donor for the transfer and any income or capital gains created by property transferred to the CRT becomes income and capital gain to the donor.

T

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

he new law also allows a donor to reform a trust, by modifying either the annual payout or the term of a CRT (or both), to allow the trust to meet the 10% minimum charitable benefit. Strict time limits have been imposed for this reformation.

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

Seek Professional Guidance

The laws and regulations surrounding Charitable Remainder Trusts can be complex and confusing. Individuals facing decisions concerning the tax and estate planning implications of a CGET are strongly advised to c

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

nsult with an attorney.

Case Study: Beth and John own $1 million of stock that cost $100,000. They realize that their portfolio needs better diversification and would like more income, but they do not want to pay the capital gains tax. Th

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

ey could place the stock in a trust set up by their attorney. The trust would be a tax-free entity and could sell the stock without paying the tax.

Now there is $1 million cash that can be invested. This could go into a balanced portfolio,

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

or an annuity. It doesn’t matter. And Beth and John can make a one-time decision on how much lifetime income they’ll receive from the trust.

The IRS will let Beth and John take an income tax deduction of $417,180 when they do this, as long

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

as at least 10% of the money that originally goes into this trust is left to charity. And since they technically no longer own the $1 million, it is out of their estate, thereby saving their heirs $460,000.

Beth and John are thrilled. The

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

y’ll end up with more income, less market risk, and a nice tax deduction. But the kids aren’t so happy. They thought that they were going to get the $1 million. However, a wealth replacement trust would take care of that.

Beth and John ta

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

e part of their new income and buy a $1 million, second-to-die life insurance policy on their lives. The policy is owned by an irrevocable life insurance trust so the proceeds are removed from their estate. When the survivor dies, the child

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

ren will receive $1 million tax-free, and the charity will get whatever remains in the trust.

If you ever have questions about planning for your immediate or long-term retirement goals, please feel free to call or send in the enclosed coupon

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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