Charitable Trust Example
Tristan and Isolde, ages 68 and 65, own $250,000 in stock that they bought in 1975 for $50,000. Instead of selling it and reinvesting the after-tax proceeds of $210,000, they contribute the stock to a charitable remainder unitrust with a payout rate of 6% for their lifetimes and receive an income-tax deduction of $77,980. The trustee sells the stock (paying no tax on the gain), reinvests the proceeds, and earns a net total return of 8%. The trust pays Nan and Bob $15,000 (6% of $250,000) in its first full year. If the trust principal continues to grow by 2%, the payments will increase each year.