When her mother passed away many years ago, Gloria inherited a parcel of undeveloped land near the outskirts of town. She was only in her mid-30s when she obtained the property and made the decision to hold onto it as a long-term investment. That was two decades ago. The town has now nearly enveloped her property, and the land is increasing in value.
Gloria is also a good friend of our organization. She volunteers regularly, makes annual gifts and helps financially with special projects that are of particular interest to her. One morning while we were visiting, she mentioned that she would like to do something especially meaningful for our work but was struggling with a way to make that possible.
"I own some land that has grown substantially in value," she explained. "But I also counted on that to help supplement my retirement. And if I were to sell it now and use only a portion of the proceeds to make a gift to you, I'd be facing a capital gains tax that I really don't want to pay."
We asked if she had ever heard of a charitable remainder unitrust. It was a new concept to her. "A charitable remainder unitrust works like this," we explained. "You would create a special trust and then transfer your property into it." The unitrust would sell your property but you would bypass any capital gains tax because it is a charitable entity. You could also receive a nice charitable income tax deduction.
Once the property was sold, the trust would use the proceeds to pay her an income for life. Ordinarily, unitrusts pay 5-8% of the trust's value. Since unitrusts are revalued annually, her income stream would fluctuate each year proportionately to the value of the trust. "Assuming that the trust grows over the long term, your unitrust will provide you with an even larger income when you are older, thus generating that supplemental retirement income you wanted," we explained. After Gloria passes away, the trust would come to us as a very generous gift.
"That sounds like a great idea," she responded. "What do we do next?"
We explained that we would need a qualified appraisal of the property and, at the least, a minimum environmental impact review conducted. We also would want to work closely with her attorney in drafting or reviewing the unitrust agreement.
After several months, the trust was completed and the land transferred and sold. The funds are being professionally managed by an experienced financial administrator.
Gloria recently told us she is very pleased with the results: She has turned a highly appreciated parcel of land into an income stream for now and her retirement years, avoided capital gains taxes, obtained a generous income tax deduction and has arranged for a wonderful gift to benefit a cause she deeply cares about.
If you are interested in learning how a charitable remainder unitrust might benefit you, please contact us for a personal illustration at no cost or obligation.
