The Charitable Remainder Trust That Pays a 72-Year-Old $85,000 a Year for Life and Generates a $179,000 Tax Deduction in Year One

"Most retirees sitting on heavily appreciated stock face an uncomfortable choice: hold it and accept the concentration risk, or sell it and hand roughly a quarter of the gain to the IRS."

"A Charitable Remainder Annuity Trust offers a third path that converts that appreciated position into a lifetime income stream, generates a substantial tax deduction, and ultimately benefits a charity the donors care about, without triggering the capital gains tax that would otherwise consume a significant portion of the asset's value."

"A Charitable Remainder Annuity Trust is an irrevocable vehicle funded with an asset, in this case, the appreciated stock, that pays the donor a fixed annual amount for life. The "annuity" designation means the payment is fixed in dollars rather than floating as a percentage of the trust's value, so the income is predictable regardless of what markets do after the trust is funded."

"At a 5% payout rate on a $1.7 million trust, the annual payment is $85,000, paid for as long as the donor lives, after which the remaining trust assets pass to the designated charity. The trust, not the donor, sells the appreciated stock after the contribution is made. Because the trust is a tax-exempt entity, the sale does not trigger capital gains at the time of the transaction."

Heavily appreciated stock creates a choice between holding concentrated positions and accepting concentration risk or selling and paying substantial capital gains tax. A Charitable Remainder Annuity Trust provides a third option by funding an irrevocable trust with the appreciated asset. The trust pays the donor a fixed annual amount for life, creating predictable income regardless of market performance after funding. Because the trust is tax-exempt, it sells the stock without triggering capital gains tax at the time of the transaction. The donor receives ordinary income tax on annual distributions, but the tax is spread over the donor’s lifetime. After the donor’s death, remaining trust assets pass to a designated charity.

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