PETERS - Renaissance

Case Strategy:
Partial Real Estate Sale through a CRT
PETERS
Deduction and
Lifetime Cash Flow
Remainder
CRT
60%
Real Estate
Ken & Marie
Peters
40%
Real Estate
Sales Proceeds
Sold
Outright
Remainder
After Estate
Taxes
Favorite
Charities
Heirs
Ken and Marie Peters, both age 63, want to create an income stream for retirement, have enough funds to
purchase a vacation home and reduce their responsibilities. To achieve their goals, they decide to sell a rental
property they purchased 25 years ago for $150,000 which is now valued at $1,000,000. This will help the Peters
get out of the real estate management business and provide the additional retirement funds they desire.
While meeting with their financial planner, Jodi Karlson, the Peters are surprised to learn they will pay more than
$150,000 in capital gains tax when they sell the property. Fortunately, Jodi has a solution which will completely
offset all of their capital gains tax and meet their other goals while also making a bigger gift to charity than they
ever dreamed was possible.
Jodi explains to the Peters how they can contribute an undivided fractional interest in the real estate to a Charitable Remainder Trust (CRT) and sell the remaining portion outright. The portion contributed to the CRT will
avoid all capital gains tax and produce a charitable deduction, which can be used to offset the capital gains tax
paid on the portion sold outright.
Acting on Jodi’s recommendation, the Peters contribute 60% of the property to a CRT and sell the remaining
40% outright. The Peters avoid $90,000 in capital gains tax through the CRT. Further, their income tax deduction
of $184,000 creates a tax savings of $64,000 which more than offsets the $60,000 of capital gains tax from the
40% portion they expect to sell outright. The Peters will also receive a lifetime cash flow and benefit their favorite
charity with a substantial gift.
Ken & Marie
Peters
Before-Tax
Lifetime Cash Flow
Children
Charities
$287,000
$930,000
$1,463,000
Taxes Saved
Estate Tax Saved
$450,000
Capital Gain Tax Saved
$90,000
Assumptions:
CMFR = 3.2%. Annual CRT payout = 5%. Investment Return of CRT = 7%.
Marginal Federal and state capital gain tax rate = 19.25%.
Assumes a taxable estate. Marginal estate tax rate = 45%. Ken & Marie’s typical
AGI was $300,000.
Ken and Marie can provide additional benefits to their heirs through life insurance
or separate planning.
Assumes the property is not subject to a mortgage.
Selling expenses are assumed to be 7% of the real estate value.
The property in the CRT cannot be used by or sold to the Peters or their family.
If the property was depreciable, capital gain tax may be higher.
For more details about
this strategy or any other
charitable or trust case,
please call Renaissance
at 800.843.0050.
This example is hypothetical and for educational use only. The situations, tax rates or return numbers do not represent any actual clients
or investments. There is no assurance that the rates depicted can or will be achieved. Actual results will vary. Please consult with legal
and tax counsel about the suitability of this plan before proceeding.
NJ
6100 W. 96th Street • Suite 100 • Indianapolis, IN 46278 • Ph: 800.843.0050 • Fax: 877.222.1829
www.CharitableTrust.com
© 2009-2014 Renaissance

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