Utilizing a Charitable Remainder Trust (CRT) to Sell Appreciated Securities
- By Oaktree Advisors
John and Susan Foster, both age 72, own 25,000 shares of Apple stock, with average cost basis of $15 per share. This has been an extraordinary investment for the Fosters, with the shares today worth over $3,000,000.
Now that John and Susan are comfortably retired, their goals have changed. The couple wants to take steps to preserve what they have, as well as find a way to give back to their community. The Fosters have always been charitably inclined and over the years had hoped to someday make a sizable gift to their church.
When discussing different ways to diversify their holdings and provide retirement income, they were shocked to learn that they would owe over $800,000 in capital gains tax if they sold their Apple stock.
What We Did
Oaktree Advisors was able to present a solution that accomplished multiple objectives, by recommending a Charitable Remainder Trust (CRT).
- The Fosters made an irrevocable gift of 40% of their Apple stock, valued at $1,250,000, to the CRT. The Fosters received a current income tax deduction of $240,000, based on the amount of income retained (5%) and their life expectancy.
- The trust then sold the shares. As a charitable entity, no tax was owed on the sale.
- The Fosters retained a 5% annual income flow from the trust.
- As trustees, they control all investment decisions for the trust.
- Upon death, the remaining assets inside the trust will be passed to their church.