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Funding a CRT With Appreciated Stock Increases Tax Savings
Q: Can stock be used to fund a CRT?
A: Definitely. In fact, stocks that are highly appreciated may be an even better choice than cash to fund a CRT. This is because you are able to avoid recognizing and paying capital gains taxes in the year when you use long-term appreciated securities to fund a CRT. Plus, you qualify for a charitable deduction based on the full fair-market value of your stock.
Roger, age 65, is retiring this year. He has invested well, but his stock pays virtually no dividends. Now that he is retiring, he would like to convert some of his holdings to a source of higher income. However, he is reluctant to sell and see 15% of his profits consumed by tax. He would also like to find a way to make a substantial gift to RUSH University Medical Center.
Roger decides to use $250,000 worth of his stock to create a CRUT that will pay him 5% of its annual value. During the first year, the trust pays him $12,500 (5% of $250,000) - almost all of which is net additional cash flow. This plan produces a deduction of $113,700, which saves him more than $39,700 in his 35% federal income-tax bracket. And because his basis in the stock is just $100,000, he avoids $22,500 in capital gains tax (15% of $150,000 gain). |
