Planned Giving News Archives
Is it Time to Sell Property? IRS set to end means of deferring taxes.
A bulletin issued by Trusts & Estates Wealth Watch News indicated that the IRS is to adopt a rule change that effectively ends the use of private annuity trusts as a means to postpone taxes on the sale of appreciated property. This new rule is retroactive to October 18, 2006 when the proposed rule change was announced.
What are the alternatives? These are some of the alternatives suggested by the Trusts & Estates article.
- Installment sale is one possibility. An individual can sell a property through an installment sale. By taking a portion of gain into income each year, the installment sale method defers taxes to later years. The buyer can resell the property - but still is obligated to pay back the seller. If the property is sold again at some time and the contract is paid off, the capital gains tax from the original sale is due as a lump sum.
- A charitable remainder unitrust avoids the capital gains tax penalty. The property is put into a charitable trust with a term of the life of the donors (perhaps the parents) or for a term of 20 years. If the term of years option is used, the trust would continue making distributions to the children if the parents die before the trust ends. George Fox University could be one of the beneficiaries of the trust and also serve as trustee to handle the sale of the property and administer the trust.
- A charitable gift annuity provides fixed and guaranteed payments to the donors for life. A gift annuity also avoids the capital gains tax on the transfer of the property. An allowance must be made for the costs associated with the sale of the property when the annual annuity amount is calculated. A portion of each annuity payment will be classified as long-term gain, however the tax rate for capital gain income is lower than ordinary income rates. A gift annuity provides financial security and a secured income stream, especially for older donors.
For more information about these and other planned gift options for managing assets, contact Gene Christian, director of planned giving at George Fox University, 503-554-2106, gchristian@georgefox.edu.