Dale and Joan are hardworking real estate sales couple. They're 60 years old and want to slow down to start taking it easier. They both have a large simplified employee pensions SEP’s which are going to take care of them during their retirement. And what they like to do is put of taking income from the SEP’s until they have too which is aged 70 ½.
So what they need to do is bridge the gap in their income over the next 10 years. A number of years ago, they are able to buy a piece of land that they felt was in the path of progress. They paid $200,000.00 for it, now it's very unclear.
They’ve been leasing it out to a small apple grower and now, a shopping center developer who wants to buy it for a $1 million. If they sell the land, they’ll face an $800,000.00 capital gain. Now in addition, Dale and Joan’s church it’s just starting a capital campaign to build a new building.
Part of the money will be raised and part of it will come from a bank loan. So how can Dale and Joan sell their property without having to pay the capital gain stocks? Create the income that they need over the next 10 years until they start drawing money from their SEP’s and help their church with it’s building program.
Well, let’s see how a party can benefit. Dale and Joan setup a 10-year charitable trust with a payout percentage of 6% and fund it with their land. The trust consult the land without paying the capital gains tax and reinvest the entire million dollar in something that will produce an income.
Dale and Joan can kick back and live with all this $60,000.00 annual income from the charitable trust for the next 10 years. To transfer the land to the charitable trust, also creates an income tax reduction of $555,000.00
The income tax reduction will make the $60,000.00 go a lot further, because they likely will owe no income tax for the next 6 years. Then in 10 years the charitable trust terminates, so the $1 million is distributed to Dale and Joan’s church.
The church pays off the $1 million over it’s building loan and Dale and Joan start withdrawing money from their SEP’s.
This is Bob Cavanaugh with The Smart Giver.
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