...you take advantage of a special type of trust that may enable you to avoid capital gains tax and receive other valuable benefits.

It's called a unitrust or tax-exempt trust (hereafter referred to as "trust"), and it is quickly turning into a powerful tax-saving and estate-conservation tool.

This type of trust can significantly improve the financial security of you and your family. But before we get into it's benefits, let's examine the tax problem faced by people who would like to sell property that has increased in value, property such as land, buildings, stocks, a business, etc.

The penalty for selling at a profit

Dale and Elva Johnson (not their real names) are a typical case. Almost 30 years ago, they bought farm land in any state, USA, for $48,000. They worked hard, made a decent living, and raised three children. Having both reached 60 years of age, they are ready to retire. Their children have no interest in farming.

Selling the land seems like a good idea, so Dale and Elva have it appraised. They discover they have a bumper crop. Current value: $360,000! The Johnsons are ecstatic, until they visit with an accountant friend who tells them about capital gains tax.

The accountant explains that if they sell the land, they will realize a gain of $312,000 (remember, they only paid $48,000 for it). The accountant tells them that under current tax law, their gain is taxable at 28%. Tax due and payable when they sell the farm: $87,360! With the suddenness of a summer hail storm, the Johnson's bumper crop has taken a hard hit. But before they sink into despair, their accountant friend begins to tell them about a highly attractive route around the problem.

The advantages of using a Trust rather than selling outright

• Avoidance of capital gains tax as already noted. There will be the full selling price of $360,000 to invest and from which to earn income rather than the $272,640 they would have if they had sold the property outright.

• They will receive income for the rest of their lives (after the death of the first spouse, the survivor will continue to receive the income). They can set the payout rate, but it must be a minimum of 5%.

• An immediate charitable deduction for that portion of the Trust assets that will eventually pass to Summum (IRS mortality tables and discount rates are used to make this calculation). For the Johnsons, assuming a 7% payout rate, the deduction will amount to $71,939 (the lower the payout rate, the greater the deduction). If they exceed the charitable deduction limit in a single year, they can carry it over for up to five additional years.

• Avoidance or reduction of estate tax, because the property placed in the Trust will be removed from the Johnson's estate. Moreover, the assets will avoid probate proceedings.

• Relief from paying expenses associated with owning the land (taxes and insurance), and relief from management responsibilities.

• Satisfaction of knowing they will be making a substantial gift to Summum, to be used in furthering the charitable projects of Summum.

For the Johnsons, and for countless others in similar situations, it's as simple as black and white. Don't sell property that has grown in value. Instead, transfer it into a Summum Charitable Trust.

                     Sell         Trust
                   --------     --------
Proceeds from      $360,000     $360,000
 sale of asset

Capital gains tax  $ 87,360     $      0a

Net available      $272,640     $360,000
 to invest

Charitable         $      0     $ 71,939
 deduction

Annual payments
 received
 - Year  1         $ 25,200     $ 25,200b
 - Year 23         $      0     $ 31,367
 - Year 30         $      0     $ 33,629

Duration of        22 years     Lifetime
 payments

Expected total     $589,846     $876,579
 of payments

Net to heirs       $      0     $360,000

Gift to Summum     $      0     $485,226

Total expected     $589,846   $1,168,474c
 family benefit

This page is designed to provide accurate information with regard to the subject matter. It is made available with the understanding that Summum is not rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought.