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Capital Gains Tax Problems?


Do you have stock, mutual funds or real estate property that has significant capital gains built up? One way to solve this problem is to consider a Living Remainder Unitrust. An example on how this could be used is presented in the following illustration:

Lets assume John and Mary purchased some property years ago for $40,000. Today it is worth $200,000. The built in capital gains is $160,000. If their combined marginal tax rate is 28%, the capital gains tax would be $44,800. Instead of selling the property directly, they could transfer it into a Living Remainder Unitrust. The Unitrust could sell the property and not be subject to the capital gains tax. If they sold the property directly they would have $155,200 to invest. Transferring it to a Remainder Unitrust would mean they would have the whole $200,000 earning income for them during their life time. If we assume that both investments pay out seven percent, the income would be $14,000 from the Unitrust and only $10,864 from the direct sale proceeds. I am sure they can use the $3,136 additional income each year.

After the life time of the donors, the Unitrust is distributed to the named charities. This final distribution qualifies the donors to receive a charitable deduction based upon their life expectancy. This deduction can be applied to the income received from the Unitrust. The portion of the deduction not used during the first year can be carried forward another five years.

There are many variations of the Unitrust which can be structured to meet each individual unique situation.  

Please feel free to call Corban to receive an illustration for you and your financial and legal advisors. Call 503-375-7003.

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