Traffic on all northbound arteries is picking up as the snowbirds return home after their winter in the sunny south. For many of these retirees, their first order of business once home will be to visit their trusted advisors. If your clients share with you concerns about maintaining two homes, are you ready to discuss options with them?
A Charitable Remainder Trust is a great idea for clients interested in selling real estate, creating an income stream and decreasing their tax burden, all while benefitting charity.
Ken and Marie Peters, both 63, were able to use a CRT to achieve their goals. After deciding to sell a rental property they purchased 25 years ago for $150,000, now valued at $1,000,000, the Peters were surprised to learn they would owe more than $150,000 in capital gains tax upon the sale of the property.
On the advice of their financial planner, the Peters contributed an undivided fractional interest in the real estate to a Charitable Remainder Trust (CRT) and sold the remaining portion outright. The portion contributed to the CRT will avoid all capital gains tax and produce a charitable deduction, which can be used to completely offset the capital gains tax paid on the portion sold outright.
How did they do it?
The Peters contribute 60% of the property to a CRT and sell the remaining 40% outright for the following benefits:
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This example is hypothetical and for educational use only. The situations, tax rates or return numbers do not represent any actual clients or investments. There is no assurance that the rates depicted can or will be achieved. Actual results will vary. Please consult with legal and tax counsel about the suitability.
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