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Donating Appreciated Stock

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Donating Appreciated Stock

 

Charitable trusts let you avoid tax when you sell appreciated assets such as real estate, a business, or securities. This requires splitting the asset into two parts (an income, payable for a term of up to 20 years or a lifetime, and a remainder, payable when the income ends), and giving one to charity. The most common form is the charitable remainder trust (“CRT”). Here’s how it works:

  • Establish the trust with one or more charitable beneficiaries. You can act as trustee and manage assets yourself, subject to the “prudent trustee” rule, and even change beneficiaries.
  • Give property to the trust. You get an immediate deduction equal to the present value of the remainder interest you give, calculated according to your age, the income interest you keep, and the current “Section 7520” rate. You also eliminate the value of your gift from your taxable estate.
  • The trust sells assets, tax-free, and reinvests the proceeds.
  • The trust pays you income equal to a percentage of trust assets (“unitrust”) or a specific dollar amount (“annuitrust”). You can draw income now, or wait until a later date.
  • At your death, the trust remainder passes to charity.
  • Alternatively, a charitable lead trust pays income to charity and leaves the remainder for you or your heirs.

Example: You’re male, age 60, with $1.0 million in stock and a basis of $250,000. The Section 7520 rate is 5.6%:

  • If you sell the stock outright, you’ll pay up to $178,500 in federal tax, leaving that much less to reinvest.
  • If you give it to a CRT and keep a 6% income, you’ll get a $312,349 deduction and keep the full $1.0 million to reinvest.

 

 

 

 

 

 

 

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