Andrew would like to sell his grocery store. He would like to continue to support the hunger-relief charity with whom he has partnered over the years. Andrew also wants to ensure a steady stream of income when he reaches retirement age in ten years and to provide a sizeable inheritance for his two daughters. A buyer is interested in purchasing the store for $1 million, but Andrew hesitates because he would lose about $200,000 of the sale proceeds to capital gain taxes.
Over lunch with his accountant Bill, Andrew learns about a Charitable Remainder Unitrust, or CRUT. The CRUT would defer capital gains and allow money to grow tax-free. As a result, Andrew will have more money during his lifetime, his daughters will receive a greater inheritance and over $1,500,000 will go to the hunger-relief charity.
Compelled by the numbers, Andrew gives his stock in the grocery store to a CRUT. The CRUT's trustee then sells that stock for $1 million, free of capital gain tax. Andrew works with his financial advisor to reinvest the total sale proceeds to provide a gross cash flow projected to average $70,000 a year. Bill also suggests that Andrew purchase a replacement life insurance policy, in the event of his untimely death, to benefit his daughters and bypass federal estate tax. Finally, when the CRUT matures, the remaining assets will go to the hunger-relief charity.For a closer look at the numbers, try our Charitable Remainder Unitrust v. Side Fund Investment Comparison calculator on our educational website, CharitablePlanning.com. Just sign up for a free trial (no payment information required!). Also, be sure to check out our many case studies on CRUTs and for a more technical discussion, Chapter 9 of our Handbook.