Mary had a little stock whose gain was quite a bit!

Mary had a little stock whose gain was quite a bit!

Case study posted in Life Estate Agreement on 9 June 2016| comments
audience: National Publication | last updated: 10 June 2016


Sometimes, combining planned gifts can have tremendous benefits, especially when the donor really doesn't give up much at all.

Sometimes (most times) it pays to think outside the box. In this article I’ll be showing you how Mary can sell her stock, reduce her income taxes on the capital gain from the sale and make a significant charitable gift without changing her lifestyle. You’re probably thinking this is a CRT, but it’s not.

Mary is age 70 and has a significant amount of zero basis stock in a single company where she worked for many years. She would like to diversify to increase her income, but she doesn’t like the thought of the taxes she would have to pay. So what can she do? Well, she could do a lot of things with charitable planning, but today we’re going to show her how to give her home to charity, keep living in it, and receive a significant charitable income tax deduction to eliminate her taxes on the sale of her stock by showing her exactly how much stock she should sell over each of the next six years.

So here is what we did…

First we calculated he charitable deduction for the life estate of her home (line 2).

We then simply calculated the amount of stock she could sell each year over the next six years to exactly match her total charitable deduction. The sale of the stock would increase her AGI and allow her to sell more stock (see line 1 for her increased AGI).

So the bottom line is this, Mary had a problem (the stock sale). But we didn’t give the stock through a charitable vehicle to eliminate the capital gains tax. We simply used another charitable vehicle, the life estate agreement, to shield the sale of the zero basis stock.

But what if the §7520 rate had been higher? Here’s the deal. A change in the §7520 rate will dramatically change the value of the deduction for Mary. While we used the current rate of 1.8% for the deduction she could use today, had the §7520 rate increased her deduction could be much less and therefore she would not be able to sell as much stock.

CLICK HERE to download a presentation that explains the life estate agreement used in this analysis that you can use with your clients and donors.

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