The
Dilemma
You have property
that is either non–income-producing or produces a small amount
of income. Examples might be land on which there is no crop or a
blue chip stock which pays only a 2% dividend. You desire to
increase your income … but you also fear capital gains taxes
… and you really would like to be able to leave the property
to Emmanuel.
The
Solution
You transfer the
property to a charitable remainder unitrust. The trustee (which
can be you) manages the property so that it produces income for
you as long as you live with the remainder of the principal
going to Emmanuel School of Religion upon your death. You enjoy
an increase in income because you select the rate of return
(which must be at least 5%), you receive a charitable deduction,
you pay no capital gains taxes or estate taxes, and Emmanuel
receives your gift after you no longer need it.
The charitable
remainder unitrust has some flexible and interesting optional
plans for pay-outs to meet your individual needs. Contact
Emmanuel School of Religion for more information.
Let’s
Be Specific
Mr. & Mrs.
Smith have stock valued at $100,000, but which cost them only
$10,000. As is common with many stocks, they receive only a 2%
dividend. They would like more income, but are concerned about
the capital gains if they sell the stock and the potential
estate taxes if they keep the stock. They transfer the stock to
a charitable remainder unitrust. Transferring the stock to a
unitrust avoids all capital gains taxes no matter what stock
transactions take place within the trust. Since the trust is
outside their estate, no estate taxes are due on the trust
assets. The Smiths receive a sizable charitable tax deduction
the year in which the trust is created. They select an 8% rate
of return, and Emmanuel School of Religion will receive the
remaining principal when both Smiths are deceased.
A
Service to You
If you would like
to know the specifics about your situation, provide us your
birth date(s), proposed value of the trust, what asset would
fund the trust (if appreciate property, the cost basis and fair
market value), and the percentage return you would like to
receive. We can give you a good idea of how the trust would work
for you.
How
is the Income Determined?
You select the rate
of return you wish … the higher the rate of return, the lower
the charitable deduction. Assuming you, as the Smiths, select an
8% return. The trust is initially valued $100,000, so your
annual return is $8,000. The first business day of each year,
the trust is revalued. Let’s say it has grown to $110,000 …
for that year you would still receive 8%, but it would be of the
new value, so your income would be $8,800. If the trust value
drops, then you would receive 8% of the reduced value.
You also have the
option to fix the amount you receive annually from the trust
regardless of the investment performance of the trust. The
annual trust pay-out to you has several other available plan
options. We would be happy to discuss them with you.
What
determines the charitable deduction?
The charitable
deduction is determined by your age, the percentage payment to
you, and the fair market value of the property used to fund the
unitrust. Of course, the deduction hinges on the principal of
the trust eventually being received by an approved non-profit
organization.
Can
the trust be used to provide income for someone else?
Yes, you may
include a spouse, parent, child, etc., as co-recipient of the
income. You may also receive income for your life and then
assign the income for a second person’s life. Perhaps you have
a child that “goes through” money. You can provide an annual
income for the child, but the principal would eventually come to
Emmanuel. Your charitable deduction would be less because two
lives increase the overall life expectancy.
What
if the trust doesn’t earn my selected rate of return?
You would still
receive an amount equal to the rate of return. The trustee would
then make appropriate changes to increase the earnings.
