 |
|
 |
|
  |
     
   
|
|
|
Use an Asset to Create a Pension Payment for Yourself
A Charitable Remainder Trust, commonly called a CRT, can generate income for the rest of your life and provide the VFW National Home for Children with a sizeable gift. It can greatly reduce estate taxes and generate income from assets that otherwise might not produce income. This strategy is commonly used with appreciated stock, the sale of land or the sale of small businesses.
Example:
Mary, age 75, decides to sell a small business valued at $1,000,000 with a cost basis of $400,000. She also needs to generate income for her retirement years. In addition, she wants to have a lasting impact on the National Home. To accomplish this:
- Mary places the business into a CRT. This trust now owns the business and sells it. Mary no longer has the business, but maintains control of the $1,000,000 proceeds that now exist within the trust;
- The gain of $600,000 on the sale of the business is tax-free and the proceeds of $1,000,000 are invested through the trust;
- Mary also chooses to withdraw 7% of the CRT’s value each year as income for the rest of her life;
- Mary is entitled to a charitable deduction of $451,117;
- When Mary passes away, the remaining value of the CRT is passed on to the National Home.
By establishing a CRT, Mary accomplishes many goals. Not only does she generate a large charitable deduction, she controls how the money is invested and receives income for the remainder of her life.
Because this type of trust does not provide for Mary’s heirs, she could choose to use this strategy in combination with a wealth replacement trust. The premium for the life insurance policy can be paid from a portion of the tax savings and/or income generated by the CRT. When Mary passes away, the National Home still receives the remaining value in the CRT and her heirs receive the proceeds from the life insurance policy, which is estate and income tax free.
|
| |
