Like many investors, you may find yourself in a dilemma. You would like to increase the income you derive from your investments, but you do not want to sell your growth stocks at a large profit because you will have to pay capital gains tax on their appreciation.
How, then, can you increase your dividend income without paying any capital gains tax?
Unitrust to the Rescue
Let's assume you are willing to make a major gift of securities, provided you can maintain the same level of income. A deferred gift called a unitrust can unlock the income power of your investments.
Example: Stewart has stocks yielding a 2 percent dividend. He gives them to a unitrust, incurring no up-front capital gain. The trustee agrees to pay him an income each year for life. The payments are 6 percent of the market value of the unitrust's investments, as determined annually. At Stewart's death, the balance in the trust is payable to us.
Figuring Your Tax Benefits
When you fund a unitrust, you are entitled to a sizable income tax charitable deduction. The amount of your deduction depends typically on your age (how long the trust will last), the income percentage you select and the value of assets you place in the unitrust.
You will not incur any up-front tax when you transfer appreciated securities to fund a unitrust. Moreover, the computation of your charitable deduction for a gift funded with long-term securities is based, in part, on their full market value, not their lower cost basis.
Save on Capital Gains Tax, Too
If you sell long-term appreciated assets, you pay a capital gains tax. If you give those assets to a unitrust and then they are sold, however, the gains are not taxed inside the trust.
Much More Than Tax Savings
Amazing as they are, the benefits of increasing your income and cutting income taxes are only two of the advantages you will enjoy.
Worried about inflation? Every year the amount of your income is determined using the same percentage you chose at the start, applied to the unitrust's net fair market value as determined annually. When the trust's value increases, your income increases. But if the value decreases, your income will also decrease.
You can ensure an income for life not only for yourself but also for someone else, perhaps your spouse or another family member.
You can choose to rid yourself of investment worries and secure professional management on the property you donate by selecting a professional trustee.
Your estate benefits by having fewer assets subject to tax.
Unlock Your Investments With a Unitrust
Why wait to release the latent income power of your investments? A unitrust for yourself offers the perfect solution: potentially higher income, tax savings and generous philanthropy.
We would be happy to discuss how a unitrust can fit into your estate plan. Please contact Erik Showalter at 540-460-1401 or 540-463-1865, or via e-mail at eshowalter@ka-order.org, for more information.
Click the icon to request a FREE guide to charitable remainder unitrusts.
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.
Click the icon to request a FREE guide to charitable remainder unitrusts.
