Charitable remainder annuity trust example

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. They bought the stock, now worth $200,000, several years ago for $20,000.

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.

Fair Market Value $200,000
Basis $ 20,000
Debt $ 0
Capital gain $180,000
Capital gains tax rate 15% Federal + 9% Oregon = 23%

Potential capital gains tax (if property sold) $ 41,400

Value of asset to trust $200,000
Type of instrument Charitable Remainder Annuity Trust
Term of instrument Donors' Lives

Tax deduction $ 63,034
Annual payout - fixed income $ 12,500