You may convert a low-yielding, highly appreciated asset into a source of increased cash flow by making a charitable gift. For example, a charitable remainder trust preserves the entire principal value, produces increased income and generates an income tax deduction.
Some years ago Bill and his wife bought some acreage for $50,000. Today the property is worth $500,000. Now a widower and retired, Bill wishes to remove the land from his holdings and turn it into a source of income. He is dismayed that a sale at fair-market value would result in a capital gains tax of $67,500 ($450,000 x 15% tax), leaving him $432,500 to invest. Assuming a 6% return, $25,950 of annual income would be generated.
After meeting with his advisors, Bill learned that he can transfer ownership of the land to a 6% charitable remainder unitrust with Hamilton, preserving the entire fair market value. Bill will be entitled to an immediate charitable contribution deduction of $255,145, saving nearly $90,000 in income tax (at the 35% tax bracket), and he will receive quarterly distributions equal to 6% of the trust's market value, as determined annually, perhaps as much as $30,000 in the first year, approximately $4,000 more than if he had sold the property — plus $5,400 from his tax savings.