Charitable residual trusts can increase your income, avoid capital gains taxes, reduce or eliminate inheritance taxes, provide another type of pension plan, serve humanity and put your heart in your heart. Here&39;s an example that applies to anyone considering selling a highly valued asset.
On the path of progress
Clarence and Mildred owned a family-owned farm since 1930. They raised corn and had a few cattle. However, the farm has been inactive since Clarence&39;s death 10 years ago.
The farm was once in the country. Over the years, the neighboring town has expanded to the point that its boundaries have almost reached the farm.
A real estate development company with an offer she has a hard time believing recently contacted Mildred. They want to build a giant mall on his property. In addition, they are willing to pay $ 14 million for its 80 acres.
Although Mildred is tied to her 40-year-old home and lifestyle, the decision is easy. The farm was originally homesteaded and has no base. How can it minimize the capital gains tax?
The procedure would require him to donate the farm to a charitable remainder trust. The trust would then sell the property to the real estate developer. She should use a estate planning lawyer to ensure that the gift to the trust and the subsequent sale to the real estate developer are not interpreted as a predefined series of transactions.
The use of a residual charitable trust gives Mildred the following benefits:
1. It does more than minimize the capital gains tax; she avoids it altogether. If the capital gains rate is 15%, it saves $ 2,100,000 in capital gains tax. Mary is frugal. She backed up all the buttons of a shirt, blouse or shirt. She is also suspicious. She thinks she can use $ 2,100,000 better than the people of Washington DC
2. A residual charitable trust requires an annual payment of at least 5%. It&39;s $ 700,000 a year. She is ready for life and can take every grandchild to Disneyland every year.
3. She will get a huge tax deduction based on her charitable contribution to the trust. It will be so big that the IRS will allow it to defer the unused portion for six years. It&39;s a good bet that it will not pay any income tax for the next six years.
4. She can name any number of charities to receive the $ 14 million from the trust upon her death. In the end, she could have a new church, a hospital wing or scholarships named in her honor and Clarence for his generosity. The number of people who could benefit in the future is too important to be taken into account.
5. If she wishes to disinherit her heirs, she may use part of her income to take out a life insurance policy and name her beneficiary children and grandchildren. She could also donate up to $ 12,000 (currently) per year to as many people as she wished, with no impact on gift taxes.
6. No inheritance tax will be payable on his death.
7. The $ 14 million will be professionally managed in the trust, the rest of the charitable. She has no investment concerns and can build trust to have a guaranteed income. Economic downturns, weather disasters or global events will have no effect on its revenues.
It&39;s true that Mildred could just sell the farm and pay the capital gains tax. In addition to the capital gains tax, the entry into this large sum could create more problems.
She should invest it while rejecting the suggestions of well-intentioned parents. She would have estate planning to do to prevent half of her estate being charged to the government in taxes upon her death.
When you put the trust of other charities on the table as an option, most of these problems disappear and many additional benefits appear.