Massive Tax Break for "Doing Good"

Huge Income Tax Savings and Retirement Income Strategy Awaits You!

After a ten-year Bull Stock Market run you may own stocks or stock mutual funds that have huge taxable gains waiting for you if you were to sell.

Q. Why would you want to sell after such a big gain?

A. Because you’re retired and want more income. The stock or stock fund likely pays you less that 3% per year in dividend income.

A. Because you don’t want to risk losing all that money having it in a single company stock (your old employers for example)

One terrific planning strategy that might be for you is to set up a Charitable Remainder Trust and donate your appreciated asset (usually a stock, stock fund or real estate).

When you donate to a Charitable Remainder Trust (CRT), you can benefit from:

significant (thousands) tax savings
increased income
the power of keeping the full value of your assets working and
the satisfaction of supporting a charity of your choice with a huge gift!

A CRT allows you to place assets into an irrevocable trust, while enabling you or your beneficiaries to receive the income from those assets for the term of the trust. When the trust ends, the assets will then pass to the charity you have designated.

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Here’s how it works:
As grantor, you establish an irrevocable trust. An irrevocable trust is a type of trust where its terms cannot be modified, amended or terminated without the permission of the grantor’s named beneficiary or
beneficiaries.

You then determine the term (a number of years or the lives of the income beneficiaries) and the type of CRT you desire (see below). You also designate a Trustee—you may be your own Trustee or appoint another individual or corporation.
1. Appoint an individual or individuals as the income beneficiary of the trust.
2. Name a charity or charities, or a donor-advised fund, to receive the assets at the end of the trust’s term.
3. Contribute assets into the trust from your estate.
4. The Trustee liquidates non-cash assets and all assets are invested. There is no capital gains tax to the grantor or the trust when assets are liquidated.
5. The trust pays ongoing income from the assets to the income beneficiaries for their lives or the term of
the trust.
6. After the period of time you designated, or upon the death of the last income beneficiary, the trust passes the remaining assets to the designated charity or charities (could include a donor-advised
fund).

Two types of charitable remainder trusts can help you achieve your estate planning goals

A CRT can provide income to your beneficiaries in one of several ways. This flexibility allows you to further customize your trust to help meet your financial, family and charitable giving goals. Consider these options:
Charitable Remainder Unitrust (CRUT)—pays a variable income distribution that will increase or decrease
based on the annual valuation of the trust.
Charitable Remainder Annuity Trust (CRAT)—pays a fixed distribution every year based on the value of the
trust at the time of funding.

Case Study:

Mr. and Mrs. Jackson are in their mid-sixties and are planning for the next chapter of their lives.
Mr. Jackson has worked for the same company for 25 years and has accumulated a number of shares with a low cost basis. The Jackson’s will be relying on their financial assets for a part of their cash flow needs going forward. They’re charitably inclined and are also thinking about their legacy.
The company stock is currently valued at $1 million with a cost basis of $300,000. The Jackson’s want to reduce their exposure to a single company, but are concerned about taxes.
Together, the Jackson’s and their advisor took a look at their financial situation, goals and objectives. What if they set up and donated $500,000 to a charitable remainder trust as part of the financial plan?
They considered a donor advised fund, but because the Jackson’s were looking for cash flow, it didn’t make sense; a donor-advised fund would provide only a tax deduction.

How Seniors Can Make Tax-Free Charitable Deductions (QCD’s)

By donating the $500,000 in stock to a CRT:

the Jackson’s bypassed a gain of $350,000.
This saved them $65,800 in tax at an 18.8% long-term capital gain rate.
This generated a charitable income tax deduction of $115,580 which could save them $40,453 at a 35% tax rate.
The gift to the CRT is irrevocable.
The initial tax-favored annuity payment (6.5%) from the CRT is $32,500
The CRT will continue to pay the Jackson’s as long
as one of them is alive. The rest of the needed cash flow will come from a pension, other financial asset accounts and social security.
The minimum payout rate for a CRT is 5%, but can be substantially higher and depends on how the payments are structured—in this case, joint life expectancy. Keep in mind, as the CRT payout rate is
increased, the charitable deduction will go down and vice versa.

Tax benefits review:

Tax savings on stock sale: $65,800
Charitable income tax deduction: $115,580

Consider the disadvantages of a CRT, too:
› Contributions to the CRT cannot be returned to the grantor; it’s irrevocable.
› Terms of the trade are unchangeable (though assets and charitable beneficiaries may change, depending on how the CRT was established)
› Assets that pass to charity do not pass to heirs
› Charitable trusts are subject to specific IRS rules

What about my children? I want them to get our retirement nest egg.

There’s a terrific strategy that many people love to couple with this CRT strategy. Take a portion or all (if you don’t need it) of the income driven from the CRT and purchase wealth replacement (life) insurance. This life insurance policy is structured to pay an income tax-free death benefit at the second of the couples death (making it cheaper). In this case, assuming pretty good health, the Jackson’s could take about $7,000/year of the CRT income ($32,500) and purchase the wealth replacement insurance so that their children would still get the $500,000 they gifted to the charity.

Awesome!!!!!

Win/Win/Win Parents/Charity/Children

Loser = taxman

Let me know if you would like to discuss this strategy 630-942-9007 or brad@fortunefinancialgroup.com. It’s important to get professional advice before implementing.