Example: Charitable Remainder Trusts

Jack and Joanna Hillier (both 65 years of age) own a summer cottage in Michigan. Although they enjoy having the ability to share the cottage with family and friends and have a place to vacation, the cottage maintenance is expensive, time consuming, and often a hassle. The cottage has a fair market value of $500,000 and is completely debt free.

The Hilliers have been thinking about selling the cottage, taking the profit, and avoiding all the typical maintenance problems. However, the Hilliers' basis in the cottage is $150,000 and they would incur significant capital gains taxes in the sale.

Here’s how Jack and Joanna can transform their cottage into a lifetime income stream for them and make a significant gift to Wheaton College.

  • Jack and Joanna donate the cottage to a charitable remainder trust.
  • The trustee sells the cottage free of any taxes since the trust is tax-exempt.
  • The trustee reinvests the proceeds into a diversified portfolio.
  • The Hilliers receive a current charitable income tax deduction of approximately $145,000.
  • After the cottage is sold, Jack and Joanna receive an annual income of 5% of the fair market value of the trust assets, as revalued annually. Thus, their initial annual payment will be $25,000.
Charitable Remainder Trusts

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