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Larry and Sue, both 74, would like more spendable cash now that they are retired. They are considering liquidating some stock that pays no dividends and reinvesting the proceeds for additional income. The bought the stock, now worth $200,000, several years ago for $20,000.
If they were to sell the stock they would incur a capital gain tax of $41,400 (15% federal + 9% Oregon ) on their $180,000 gain. They would have only $158,600 to reinvest that, invested at 5.5%, would yield $8,723.00 per year.
They had planned on making a significant gift to George Fox for the music program, but had assumed they would need to make the gift through their estate plan since they needed the income generated by their assets during their lifetime.
They decide to use their stock to create a charitable remainder annuity trust that will pay them 6.25% percent of the stocks value or $12,500 each year as long as either of them lives. They do not have to recognize any of their $180,000 paper gain in the stock, and they get an income tax deduction of $63,034.
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