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Mark Evans, 58 years old, has $900,000 in stock that he and his wife purchased many years ago. Their only child is a successful entrepreneur with sufficient assets of her own.
Both Mark and his wife attended their hometown University, and hope to give the stock to their alma mater after their deaths. Right now, Mark and his wife rely on the income generated by the stock to contribute to their efforts to maintain a comfortable lifestyle. Although the stock has appreciated significantly, it is only paying a dividend of about 1.2% of the value of the stock, or about $10,800 per year. Mark would like to increase the income he is getting from the stock, so that he and his wife can count on having a solid retirement income for life. However, high capital gains taxes make the sale of the stock and investment into higher income producing assets prohibitive. Mark is in a sufficiently high federal income tax bracket and would benefit from a current charitable income tax deduction at this point in time, rather than receiving an estate tax charitable deduction at his death.
Mark decides to establish a charitable remainder unitrust holding the $900,000 in stock in favor of State University. The trust document provides for five percent of the trust's value to be payable each year to Mark and his wife for their respective lifetimes, based on the annual value of the trust property. Depending on the value of the trust each year, Mark will earn approximately $45,000 per year from the trust.
In the year of the gift, Mark claims a charitable income tax deduction equal to the present value of the remainder interest that will be payable to State University. When both Mark and his wife are deceased, State University will receive the remaining assets held in the trust.
Through a charitable remainder unitrust, Mark and his wife will be able to receive the income they need to live comfortably, will receive a substantial income tax deduction, and will fulfill their charitable intentions.
Updated: January 1, 2013
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service or as a determination that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situations, and particular needs. This article is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
© 2013 Wilmington Trust Corporation.