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Vol. 4 Issue 5


Increasing Retirement Income


The stock market has been on a winning streak in 2012 and 2013. The Dow is up 9.15% since January 2012. That's great news for those who have invested wisely for retirement. There is a downside to the increases in asset appreciation and that is capital gains taxes. The top federal tax rate on most long term capital gain income has increased from 15% to 20% for high income taxpayers. These taxpayers are now also subject to the new 3.8% Medicare surtax. That tax applies to capital gain income, so the Medicare surtax effectively increases the top capital gain tax rate to 23.8% for high income taxpayers.


You may hesitate to sell your appreciated assets because you want to avoid capital gain tax. However, while the stocks that compose the Dow Jones Industrial average have experienced significant appreciation, the average yield on those stocks is only 2.71%. You may be in a position where you own highly appreciated securities but those stocks are not generating sufficient income for you to maintain your lifestyle through retirement. But if you sell the stock, to reinvest in income producing assets, you'll lose some of your principal because you have to pay capital gains tax on the sale of your appreciated assets. In other words, you are cash poor and asset rich.


There are ways to unlock the value of your appreciated assets without upfront capital gain taxes, increase your income and benefit charitable causes that are important to you such as ASHRAE Foundation. The solution is the charitable remainder trust. The charitable remainder trust is used by thousands of Americans to secure their retirement income and support their charitable causes at the same time.


Charitable Remainder Trusts


A charitable remainder trust is a separate tax-exempt trust governed by a trust agreement. You choose the trustee who is responsible for administering the trust and guiding the investment of your gift assets. Most trustees require a minimum of $250,000 of assets to establish a charitable remainder trust.


A charitable remainder trust is an irrevocable arrangement. Once you transfer assets to the trust, you cannot change your mind and get the assets back. This requirement assures that whatever value remains in your trust when it ends will go to support the charitable beneficiaries that you name such as the ASHRAE Foundation.


Types of Charitable Remainder Trusts


A charitable remainder trust can pay a fixed annuity or a variable amount called a unitrust. The unitrust is most popular because if the trust principal grows, the trust payments can keep pace with inflation.


If you choose a charitable remainder unitrust, each year, the unitrust distributes a percentage of its current value, as revalued annually. If your trust's value goes up from one year to the next, the payments will increase proportionally. Likewise, if your trust's value goes down, the payment amount will also go down.


The payment percentage must be at least 5%. It may be to your advantage to choose a relatively low payment percentage so that your unitrust's assets have the best chance to grow. A payment rate of 5% to 6% is typical.


Income Tax Deduction


You will receive an income tax charitable deduction in the year of your gift. You can calculate the deduction you might receive on ASHRAE Foundation's online calculator.


Taxation of Payments


If you give appreciated securities to fund your trust, you will not pay any capital gains tax when you make your gift. In addition, because a trust is a tax-exempt trust, it will not pay any capital gains tax when it sells the assets with which you fund it. This means that your trustee will be able to reinvest the full value of the assets you donate.


The taxation of trust payments depends on the past distributions and investment performance of the trust. Your trust income will typically be taxed mostly or completely as ordinary income, but it is possible that a portion could be taxed at lower capital gains tax rates, or even tax-free, in some years.




A charitable remainder trust might be a good way for you to increase your retirement income, reduce capital gain taxes, and receive an income tax charitable deduction.

If you would like more information on how you can benefit from working with the ASHRAE Foundation, contact Margaret Smith at, tel: 678-539-1201.


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