By: Tim Henry, Planned Giving Director
Ten years ago your Uncle Vinnie gave you a wedding gift, the privilege to buy ten thousand shares of closely held stock in his great new internet start up called Linkintomyface. You are told the stock is worth ten cents a share, but by buying now for a mere $1,000, you will be making the investment of a lifetime. You have held onto the stock not knowing what to do with it, except cashing the hundred dollar dividend checks you receive each year, but you have just been informed that the company is going public with an IPO on the stock market. Great news, because based on the popularity of Linkintomyface, you are informed the initial offering price per share is going to be set at $350 a share. This means that your ten thousand shares valued at $1,000 when Uncle Vinnie sold you the shares will be worth at least $3.5 million. Again great news, you are now a millionaire, you no longer have to worry about paying your mortgage every month or funding the kids’ college education and you can buy everyone in the family a new car.
With your initial investment of a $1,000 now worth several million dollars and having bills to pay and things to buy, and because it is the stock market and you never know what will happen tomorrow, you decide to sell all your stock and take the profits. You are set, no more worries about money you are ready to start living the good life, but now for the bad news the tax man cometh, and you owe the government capital gains tax on the increased value of the stock, which increased $3,499,000 in value since you bought it ten years ago. As you write out the check to the IRS you wonder if you had other options than the sale of the stock.
One option, to merely cashing in your stock and paying capital gains tax, is you could make a donation of all or part of the stock to The Salvation Army in the form of a Charitable Remainder Trust. In so doing, you would save yourself on capital gains tax and potentially other taxes, while making a donation to the Salvation Army that will benefit and improve the lives of many people in your community and helping to secure your legacy, a legacy of hope in troubled and difficult times.
But what is a Charitable Remainder Trust? A Charitable Remainder Trust (CRT) is a legal arrangement in which a donor gives over a piece of property or money through a donation to a charity, but the donor continues to use the property or receives an income from the asset for a set period of time, usually the donor’s lifetime. When the specified time period ends the trust property is then available for use by the charity. The benefit to the donor is that they avoid any capital gains tax on the donated assets and potentially earn an income tax deduction for the fair market value of the remainder interest the trust earned. Further, since this is an irrevocable trust the asset is removed from the donor’s estate, meaning the assets of the CRT will not be calculated into the donor’s estate for the purposed of the estate tax.
Thus, the donor receives a yearly payment of income from the CRT during their lifetime, potentially reduces their tax liability significantly and makes a donation to the Salvation Army to benefit the needy in their community. So, before you cash in your shares in Linkintomyface, evaluate if there is a way to maximize the benefit you receive and benefits you can pass on to your community, by give to the Salvation Army through a Charitable Remainder Trust.
If you have any questions or you would like to secure a legacy of hope by making a donation of a Charitable Remainder Trust or discuss other ways you can create such a legacy please call Tim Henry Director of Planned Giving at 314-646-3016 or email at firstname.lastname@example.org.
IRS CIRCULAR 230 DISCLAIMER “Pursuant to regulations governing the practice of attorneys, certified public accountants, enrolled agents, enrolled actuaries and appraisers before the Internal Revenue Service, unless otherwise expressly stated, any U.S. federal or state tax advice in this communication (including attachments) is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of (i) avoiding penalties that may be imposed under federal or state law or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter(s) addressed herein.”