Ed and Janet purchased stock in a small medical services company several years ago. The company has done well. A larger company is looking to acquire the smaller company. This sale would require that Ed and Janet sell their stock, subjecting them to capital gains tax. Ed and Janet are looking for a way to save taxes.
Ed: We were fortunate to invest in this company. Medical services have become more and more important, especially for senior Americans. We thought the value of this stock would grow, and it did. We originally paid $50,000 for the stock, and the value grew to $400,000.
Janet: We talked about selling the stock, but that would have required us to pay a lot in capital gains tax. We had hoped to sell the stock to buy a vacation home. We found a very nice summer cottage for sale on a nearby lake. The price was $120,000.
Ed: We checked with our CPA; he suggested that we talk to the Allentown Symphony about a sale and trust. We were happy to discover that with a sale and trust we could transfer $280,000 worth of the stock into a special trust called a charitable remainder trust. The trust could then sell the stock tax-free.
Janet: We were able to sell the rest of the stock for $120,000 cash. The deduction from the gift transferred to the trust saved enough in taxes to offset the capital gains tax on the $120,000 that we received from the stock sale. As a result, we could use the full $120,000 to purchase our lake home.
Ed: This was a wonderful arrangement. We now have income and are enjoying our dream house on the lake.
If you own highly appreciated property, such as real estate or stocks, you could benefit from a sale and trust. The trust will help you bypass capital gains, will provide you with a charitable income tax deduction in the year of the gift, and could increase your income. The sale part of this transaction could also provide you with a one-time lump sum payment.
If you have questions about a sale and trust, please contact us. We are happy to work with you and answer any questions you have.