Estate Planning

FOR MANY OF US, planning one's estate includes determining which charities will receive donations, and in what form the donations will be made. For those holding appreciated stock, a strategic move could be to create what's known as a charitable remainder trust, which allows you to roll the tax advantages of charitable giving into trust form.

How It Works
Let's say you bought $10,000 worth of stock 10 years ago. Today those shares are worth $100,000. You want to sell the shares but avoid the $13,500 in capital-gains taxes. What to do? If you put the stock into a charitable remainder trust, the trust can sell the stock tax-free, and for the next 20 years, the trust will pay you an annuity of, say, 6% of the principal. On top of that, you get a substantial tax deduction on the gift. The result: You move the money out of Uncle Sam's reach, create a steady flow of income for you and your heirs, and at the end of 20 years, the principal goes to charity. "I find that [a charitable trust] unifies a family," says Mill Valley, Calif., inheritance consultant John Levy. "Instead of fighting over who gets the jewelry and the antiques, it's a decision everyone can feel good about."

A Simpler Solution
An easier variation on this strategy is to just give appreciated stock to the charity of your choice outright. Say you have Coca-Cola shares that you were given as a child. The cost basis is just about nil. If you sell the stock for $20,000 and give the proceeds to charity after paying the capital-gains taxes, the charity gets only about $17,000, and you get a $17,000 tax deduction. But if you give the stock to the charity, which is tax-exempt, it can sell the shares and keep the whole $20,000. And you get a $20,000 deduction. This is what we call a win-win situation.

Consult with your financial advisor and your Transamerica representative to determine the proper amount of life insurance and type of policy needed for your estate.

SmartMoney prepared the information provided. SmartMoney is not associated with Transamerica Occidental Life Insurance Company ("Transamerica") or any of its affiliates. While Transamerica provides this material as a service to the consumer, Transamerica does not guarantee its accuracy, nor does Transamerica give tax or legal advice. Clients and prospects must consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.

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