Charitable Remainder Trust Example

Fred and Frieda Foster, ages 68 and 65, respectively, own stock worth $250,000 they purchased 30 years ago for $50,000. If they were to sell the stock and reinvest the proceeds, tax on the $200,000 gain would consume $30,000, leaving only $220,000 to reinvest. Instead, they contribute the stock to a charitable remainder unitrust, with a payout rate of 6% for their lifetimes. They receive an income tax charitable deduction of $77,265.

The trustee sells the stock and reinvests the entire $250,000 proceeds, achieving an average net total return of 7.5% per year. The first full year of the trust, Mr. and Mrs. Foster receive payments of $15,000 (6% of $250,000).

However, because the trust principal is growing by 1.5% (7.5% return less 6% payout), their payments will also increase over time. When the trust terminates, the principal will be used by Medical Teams International to demonstrate the love of Christ to people affected by disaster, conflict and poverty around the world.

Note: The tax calculations assume a 5.6% federal discount rate and payments made quarterly at the end of the quarter.

If you would like additional information, please contact us.

Linda Ranz
lranz@medicalteams.org
425.284.1941