Zack and Terri were a happy, successful couple with a number of real estate investments in the Sacramento area. Their kids were grown up, and they were ready to spend more time with each other and less time managing their properties.
One night, Zack suggested that they sell one of their holdings and realize a substantial profit–$1 million. The idea seemed like a good one.
The property was in need of renovation and tenants were hard to come by. But there was one major obstacle. Capital gains taxes on the sale would eat away a substantial portion of the profits.
Not long after that, Zack joined the development officer for the Union Gospel Mission for lunch. The couple had supported UGM generously in the past, and Zack wanted to discuss his plans for the upcoming year. Over lunch, he mentioned that he had a property he wanted to sell, but was concerned about the capital gains tax.
Sam suggested that Zack consider selling the property through a charitable remainder trust. By setting up a trust, Zack and Terri could donate the building to the trust. Since Zack and Terri could act as trustees, they would still be able to exercise control over the property and sell it. Since the trust would be a charity, it could defer the capital gains tax. The couple would also benefit from a large tax deduction for their generous gift.
After the sale, the trust would invest the full $1 million in a diversified portfolio that paid an annuity every year for the rest of Zack and Terri’s lives. And, upon their death, the investments in the trust would go to Union Gospel Mission, helping it to continue its ministry.
After consulting with their attorney and financial planner, Zack and Terri went ahead with the plan. The income from the trust is greater than the income from rents on the building, and both can take pride in their efforts to help others.