Frank is 59 and owns an apartment building worth $600,000 that he purchased many years ago for $200,000. Depreciation deductions have reduced his basis down to only $20,000.
“I’m tired of dealing with tenants,” Frank said to his attorney. “It’s time I cashed in and took life a bit easier.” But capital gains taxes would take $105,000 of his profit if he were to sell outright, his attorney pointed out.
Knowing of Frank’s longtime service as a Red Cross volunteer and contributor, his attorney suggested a different plan:
Frank will transfer the apartment to a trust that will pay him a 6% income for the rest of his life. The $105,000 capital gains tax won’t come due when the trustee sells and reinvests, so Frank will begin receiving trust income based on the full $600,000 – about $36,000 a year, to start. Based on his age and other factors, Frank also will receive a charitable deduction of about $200,000. Summing up, Frank has:
- established an income for life – one that can grow with inflation;
- reinvested a highly appreciated asset without incurring capital gains tax that would have included $400,000 taxed at a 15% rate and $180,000 taxable at 25%;
- reduced his income taxes significantly;
- made a wonderful future gift to the Red Cross.
Why should I support the American Red Cross? What are the best gift options for me and my family? How can receive more information about estate and gift planning? Who can I call in my area for assistance? Good answers are available when you visit our website www.redcrosslegacy.org.