Estate Planning Pitfall – You’re selling your interest in a charitable remainder trust

E. Hans LundstenJoseph Marion, III, and David Riedel  of Adler Pollock & Sheehan P.C., write about recently finalized regulations that could erase a potential tax shelter related to a charitable remainder trust. The article begins as follows:

Recently finalized regulations eliminate a potential tax shelter involving the sale of an interest in a charitable remainder trust (CRT). Here’s an example that illustrates how the tax shelter worked prior to the regulations:

Susan establishes a charitable remainder annuity trust (CRAT), funding it with $150,000 worth of highly appreciated stock and retaining an annuity interest. Susan’s basis in the stock is $50,000, so if she had sold it she would have recognized a $100,000 capital gain, leaving her with $120,000 after taxes (assuming a combined federal and state rate of 30%). For purposes of this example, let’s assume that Susan’s annuity interest in the trust is worth $135,000 and the charitable beneficiary’s remainder interest is worth $15,000

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Posted by Logan Davis, Associate Editor, Wealth Strategies Journal.