ILLUSTRATION --
GIFT OF APPRECIATED SECURITIES

Catherine contributes stock worth $50,000 that she had purchased ten years ago for $20,000. The effective cost of her gift can be described as follows:

 

Amount contributed	$50,000
Less savings on federal income tax	$14,000 ($50,000 at 28% rate)
Less savings on capital gains tax	$4,500 ($30,000 at 15% rate)
Equals effective cost of gift	$31,500

   

Looked at another way, Catherine has made a gift of $50,000, has $14,000 that she would not have had, and has saved another $4,500 in potential tax liability.

 

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ILLUSTRATION --
CHARITABLE REMAINDER ANNUITY TRUST

Clients:	Bob & Carol, 61 years old
Goals:	1. Give $15,000/year to grandson for college
	2. Support the Justice Fund
Asset:	$75,000 in stock, with a $15,000 cost basis
Plan A	Sell and reinvest stock
	$75,000 - $9,000 capital gains tax = $66,000 capital to reinvest
	With 7% return, after $60,000 to grandson, $14,250 left for the Fund
	$14,250 tax deduction for Bob & Carol, worth $4,700 in tax savings (33% bracket) at end of four years
	Net benefit: $78,950
Plan B	Create charitable remainder annuity trust with four-year term and 20% payout to grandson
	Full $75,000 to reinvest (no capital gains inside trust)
	$60,000 to grandson as income beneficiary of trust (four $15,000 annuity payments; donors retain right to revoke income interest by will; gift tax on annual payment offset by annual gift tax exclusion)
	$19,071 deduction for Bob & Carol, worth $6,293 in tax savings (33% bracket) when trust established
	$30,545 remainder to the Justice Fund after 4 years at 7%
	Net benefit: $96,838 (less grandson's income taxes, if any)

 

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ILLUSTRATION --
GIFT OF PRIMARY RESIDENCE

A couple, age 63, contributes their $350,000 home to the Justice Fund while retaining a life estate interest. Based on actuarial tables, they are considered to have given approximately 25% of the current value of the property and are entitled to an immediate income tax deduction of more than $87,000. Since they are in the 33% tax bracket, they receive an immediate return, in tax savings, of almost $29,000, which they can invest as they wish. They continue to live in the home for as long as they live, and they now have a liquid asset that will provide additional retirement income or help in an emergency.

 

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