PHILANTHROPY
Photo copyright: Alex Kalina
Which Would You Prefer:
LIFETIME INCOME of
$1,237,947 or $718,300?
C
haritable remainder
unitrusts are frequently
used as a real estate exit
strategy. This popular
technique can provide incredible
tax savings and help you maximize
your lifetime income.
Real Estate Exit Strategies
MADE SIMPLE
percentage of 5% for their unitrust. To
be ultra conservative, we will assume
that the trust only earns 5%.
As you read in our example above,
a charitable
remainder trust
or many individuals, real estate repfunded with
real estate can
resents a significant portion of their net
be an excellent
worth. Yet quite often it has dramatiexit strategy
cally appreciated in value. Consider these
for property
potential benefits of using a charitable
owners who
remainder unitrust as your real estate exit
are looking to
strategy.
cash in, want to
bypass capital
gains taxes,
• Minimize or eliminate capital gains tax
and desire to
• Increase income
maximize their
• Lower income taxes
lifetime income.
• Re-position illiquid asset
Compared
• Create income stream for heirs
to the most
• Establish a meaningful legacy for charity
common recommendation
of just selling
Here is a simple example in which the property and paying the taxes,
this alternative can provide enormous
the property owners increase their
benefits!
lifetime income from an estimated
Here’s how it works. Once the char$718,300 to $1,237,947 (72%) using
itable remainder trust is established,
the leverage of a charitable remainit receives title to the appreciated real
der unitrust:
estate. Typically the trust then sells
Malcolm and Margaret, age 72
the property and invests the sales
and 68, own apartment units worth
proceeds in a diversified portfolio that
$1,000,000 that are fully depreciated
will generate income for you and/or
with a cost basis of $100,000. They
other beneficiaries you select. Upon
are in a 43% tax bracket (combined
termination of the trust, any remaining
federal and state) and a 33% capital
assets must pass to a qualified charity
gain tax bracket (combined federal
or charities. Charitable trusts can be
and state). Their joint life expectancy
set up for a life, lives, and/or a term
is 22 years. They establish a payout
F
Realty411Guide.com
PAGE 31 • 2016
By Cynthia Steiger, CSPG
San Diego Rescue Mission
of years, not to exceed 20. Several
generations of heirs may be included
as beneficiaries.
Once the trust sells the asset tax
free, the entire proceeds (less costs
of sale) are available to re-invest. If a
charitable remainder trust is created
during your lifetime (intervivos), you
will also receive a charitable income
tax deduction equal to the present
value of the charity’s remainder
interest in the trust - a major benefit to lower your federal and state
income tax liabilities. This is usually a
substantial amount and is tied to the
value of the property, the estimated
life expectancies of the beneficiaries,
the payout rate of the trust and the
federal mid-term rate when the trust
is established. If the trust is created
as part of your estate plan (testamentary), it will provide estate tax savings
for taxable estates.
You select a payout percentage
when establishing the trust. A unitrust payout percentage must comply
with three basic rules. The trust must
pay a minimum of 5%, cannot exceed
a maximum of 50%, and the payout
percent must produce a charitable
deduction of 10% or greater.
Charitable remainder trusts are
irrevocable. This means that once the
trust is established and funded, the
property cannot be returned to you.
The trust must obtain a Tax ID number and file annual tax returns. The
Continued on pg. 92
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