Using a Charitable Remainder Trust for income

[WestLake]

I'm seeing that some require a 5% minimum payout. Say you have an appreciated asset like a fully-depreciated rental property that would cost you a fortune in taxes to sell if you don't want to do a 1031 Exchange to stay in the rental business... Giving that to say, a university which pays you 5% and you get a tax deduction (not sure how that works) sounds pretty good.

Thoughts?

 

[Nords]

I'm seeing that some require a 5% minimum payout. Say you have an appreciated asset like a fully-depreciated rental property that would cost you a fortune in taxes to sell if you don't want to do a 1031 Exchange to stay in the rental business... Giving that to say, a university which pays you 5% and you get a tax deduction (not sure how that works) sounds pretty good.
Thoughts?

I'd be skeptical until I compared the after-tax yield on the property (say, if the after-tax funds were invested in a SPIA) to whatever the non-profit was offering.

Even then I'd still be tempted to put the money into a REIT.

Everybody thinks depreciation recapture is a bad thing, but it's just a different tax to be paid in order to convert the asset into some other sort of asset.

 

[Gill]

A charitable remainder unitrust must pay out at least 5% of the principal value per year. That is specified when the trust is established and any remaining principal goes to the charity. The annuitant is taxed on the payments the same as any trust and, if the income was all capital gain, it would be taxed out as capital gain. At the time the trust is created the grantor receives a charitable tax deduction for the value of the charitable remainder based on IRS tables taking into consideration the age of the annuitant.
Bruce

 

[GrayHare]

Be aware the size of your tax deduction varies based on several factors, including the type of charity (public or private), the type of asset being donated (stocks, cash, real estate), the % withdrawn annually, and the duration of the CRT. The area is fairly complex, but under the right circumstances can be a win-win for both the charity and you.