Recently, I have heard from a number of individuals that they will be the beneficiaries of transactions generating heavily taxed capital gains. On one hand, investors welcome the opportunity to generate substantial profits (a “windfall”) from the sale or exchange of stocks. On the other hand, the tax costs on realized gains may be greater than the initial cost (the basis) of the stocks being sold.
What can you do to reduce or eliminate capital gains taxes without sacrificing much of the revenue you hope to generate from the sale of these stocks?
If the production of high, fixed-rate, lifetime income is something you hope to achieve from the “windfall,” you may want to consider charitable planning strategies to accomplish that goal and reduce capital gains taxes.
For example, if the sale will generate substantial proceeds (which will be reduced by significant taxes), it may be worthwhile to review calculations for a charitable remainder unitrust (CRUT). Contributing all or a portion of the stocks to a CRUT before their sale will eliminate any initial capital gains taxes. Thus, the proceeds generated by your CRUT when the trustee sells the contributed shares will not be reduced by capital gains taxes, and your payments from the CRUT will be based on the full value contributed, multiplied by the lifetime rate set out in the trust agreement.
Your CRUT may provide for lifetime payments for yourself and another (e.g., a spouse) and may continue for the life/lives of your children, subject to IRS rules. Or the trust may run for one or two lives (an individual or individual and spouse), and the donors may use a companion strategy to provide funds for the next family generation via life insurance owned by an Irrevocable Life Insurance Trust (ILIT).
At the end of the term of your CRUT, the remaining assets in the trust will be paid to AFHU and any other charities you name in the trust agreement. The remaining funds in the trust will not be subject to estate taxes.
A CRUT is a sophisticated planning vehicle that may generate significant benefits when carefully constructed. You may want to discuss this with your professional advisors.
AFHU will be pleased to provide confidential calculations and strategies for you and your advisors to consider.
May we show you how?
Please contact us at
plannedgiving@afhu.org or 212.607.8524.
