No one knows where the stock market is headed, but some investors may be looking to cash in on any appreciation without losing as much as 23.8% to capital gains tax. There are ways to retain payments for life from your charitable gift of appreciated stock.
Charitable remainder unitrusts—A unitrust pays a fixed percentage of the annual value of the trust’s assets for life or a term of up to 20 years. The trust must pay a minimum of 5% and a maximum of 50%. If the value of the trust’s assets increases, so too do the payments.
Charitable remainder annuity trusts—Like a unitrust, annuity trusts make payments for the life of one or more individuals or for a term of up to 20 years. Unlike a unitrust, the annuity trust makes fixed payments for the term of the trust. The amount is a minimum of 5% or a maximum of 50% of the value of assets originally placed in the trust.
With both a charitable remainder unitrust and a charitable remainder annuity trust, there is no capital gains tax when appreciated assets are contributed to the trust or when the trustee sells the stock to diversify the trust’s portfolio. When the trust term ends, all remaining assets pass to charity. Donors are entitled to an income tax charitable deduction when the trust is created for a portion of the value of the gift transferred.
Charitable gift annuities—A gift annuity is simply a contract in which charity agrees to make fixed payments to one or two people for life in exchange for a donor’s gift. The exact amount of the annuity depends on the age or ages of the beneficiaries. Gift annuities can be funded with cash, but funding a gift annuity with appreciated stock allows a donor to avoid some capital gains tax while spreading the remaining gains over his or her life expectancy. An income tax charitable deduction is available for a portion of the value of the stock or cash transferred for the gift annuity.
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