Nobody likes to pay taxes, and that’s why — when there’s a tax advantage you can take — you’ll probably pursue any financial break you can get. Charitable remainder trusts are very popular in this regard. They are tax-exempt trusts designed to lower your taxable income.
Imagine you have a vacation home in The Bahamas that your family has owned for the last 20 years. During this time, it’s appreciated in value considerably and now you’re ready to liquidate the property in order to take advantage of more liquid cash for your retirement. When you sell the property, however, you’ll get hit with exorbitant capital gains taxes. This substantial tax liability has left you not wanting to sell, but a charitable remainder trust could solve the problems.
With a charitable remainder trust, you can transfer ownership if your Bahamian beach property to the trust. From there, you can liquidate the property. As long as it’s liquidated under the ownership of the charitable remainder trust, the property sale will be tax exempt. The trust will then pay out its assets to you according to a payment plan, and after you have died or after a specific period of time has elapsed, the trust will donate any remaining funds to the charity of your selection.
A charitable remainder trust can be a win-win for all parties involved. You get to benefit from tax breaks and the charity of your choice gets to benefit from the money you leave behind. At John J. Pembroke & Associates LLC, we have created numerous charitable remainder trusts on the behalf of our estate planning clients. If you’re interested in this tax-saving strategy, our estate planning team is available to speak with you about your goals.