Over the years, your investments have grown nicely, but your retirement income is inadequate. If you sell and reinvest in higher-yielding securities, you'll lose part of your gain to taxes. Does this sound like you or someone you know?
One way to solve this tax dilemma is to consider a life income plan called a charitable remainder trust. As the name implies, the balance remaining after your lifetime of receiving income from the trust will be paid to Kappa Alpha Order Educational Foundation. You can also arrange a life income for a survivor.
There are two types of charitable remainder trusts:
The annuity trust pays you, year after year, the same dollar amount you choose at the start, regardless of fluctuations in trust investments.
The unitrust pays you, each year, a variable amount based on a fixed percentage of the fair market value of the trust assets, redetermined annually.
No Tax on Capital Gains
In most cases, there is no tax when appreciated securities are transferred to a charitable remainder trust. If the securities are sold by the trust, the gains aren't taxed to the trust, either.
In return for your future gift to us, you could get an income much greater than the current dividend from the typical growth stock.
Example: Jean, aged 77, owns several stocks with a market value of $100,000, but they currently yield only 2 percent, or $2,000. Jean decides to give these securities to a charitable remainder annuity trust that will pay her $6,000 a year.
If Jean sold her stocks instead, she would pay tax on her capital gain. Their cost basis is $30,000, compared to a market value of $100,000, resulting in a gain of $70,000. At a federal capital gains tax rate of 15 percent, the tax would be $10,500.
More Tax Savings
By funding the trust with appreciated securities held long-term, you are entitled to a sizable income tax charitable deduction based on their full fair market value.
Example: Upon establishing her charitable remainder trust, Jean is entitled to an immediate charitable deduction for a portion of the current value of the trust assets. This is based on the charitable organization's right to receive the remainder of the trust assets after her lifetime. Jean's deduction is $52,628 (assuming annual payments and a 3.4 percent charitable midterm federal rate). In her 28 percent federal tax bracket, Jean will realize income tax savings totaling $14,736.
A Gift That Gives Back
A charitable remainder trust can boost your income, save income taxes and let you profit from appreciated assets during your retirement years. Most important of all, you gain the heartwarming satisfaction of helping others in the future.
Please contact Erik Showalter at 540-460-1401 or 540-463-1865, or via e-mail at eshowalter@ka-order.org, for more information.
The information in this Web site is not intended as legal advice. For legal advice, please consult an attorney. Figures cited in examples are for hypothetical purposes only and are subject to change. References to estate and income tax include federal taxes only. Individual state taxes and/or state law may impact your results.
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