Charitable Remainder Trusts
10. Example: Income After Sale With CRT
If they transfer the stock to a charitable remainder trust instead, they can take an immediate charitable income tax deduction of $121,712,** which will reduce their current income taxes by $42,599.*** The deduction can be used against 30% of their adjusted gross income for the year. If they can't use all of the income tax deduction in the year they transfer the asset to the trust, they can carry it forward for an additional five years.
The trustee will then sell the stock for $500,000. But because the trust is exempt from paying capital gains tax, the full $500,000 is left to re-invest instead of $440,000.
If we use the same 6% annual return, that would provide Max and Jane with $30,000 in annual income which, before taxes, will total $780,000* over their lifetimes. That's $93,600 more in income than if they had sold the stock themselves.
Now let's look at a few more things you should know.
NOTES: *Actual income may be higher or lower, depending on investment performance. **Based on 6.0% Unitrust (annual payout) at 5.4% AFR (applicable federal rate). ***$121,712 x 35% income tax rate = $42,599.