The Charitable trust and real estate
The chart below illustrates the comparison between a charitable remainder trust and a sale and reinvestment of the proceeds. The real estate owners are both 70. Their property is valued at $5 million with a cost basis of $500,000. Proceeds from each option are invested at 9%, with 7% paid out in income. The owners are in the 37% income tax bracket.
| Income tax consequences |
|
|
Sale/Reinvest |
| Net fair market value |
$5,000,000 |
|
$5,000,000 |
| Less capital gains tax @15% |
$0 |
|
$675,000 |
| Net proceeds |
$5,000,000 |
|
$4,325,000 |
|
|
|
|
| Charitable deduction |
$1,549,350 |
|
$0 |
| Tax savings (using the deduction) |
$526,779 |
|
$0 |
|
|
|
|
| Projected cash flow |
|
|
|
| Before-tax benefit |
$8,504,079 |
|
$7,356,029 |
| After-tax benefit |
$6,461,600 |
|
$4,704,831 |
Insurance trust premiums
(Insurance trust premiums paid from tax savings first, then income) |
$(1,200,000) |
|
$0 |
| Increase in lifetime income |
$1,083,548 |
|
|
|
|
|
|
| Family and Charity |
|
|
|
| Amount subject to estate tax |
$0 |
|
$6,426,722 |
| Less estate tax @ 55% |
$0 |
|
$3,534,697 |
| Insurance trust |
$5,000,000 |
|
$0 |
| Net estate to family |
$5,000,000 |
|
$2,892,025 |
| Increase to family |
$2,107,975 |
|
|
|
|
|
|
| Amount to your favorite charities |
$7,429,737 |
|
$0 |
|
|
|
|
| Total benefit |
$18,891,337 |
|
$7,596,856 | |
|
|