This is an idea I used to use for people who want to sell some highly appreciated property but do not want to be taxed to death on the proceeds. I say to them:
“How would you like to transfer that property to something called a charitable remainder unit trust (CRUT) and let the trustee sell the property for you, take the cash from the sale in the trust and pay you and your spouse for the rest of your lives?”
The advantage is that when the trustee sells the property, he does not pay any taxes. So if you bought the property for say $100,000 and sell it for $300,000, the $200,000 gain is not taxed. Furthermore, you get a tax deduction for the $300,000 transferred to the trust.
In addition, you are probably receiving income now that you were not before because by taking that property and transferring it into a CRUT, you have given the property to your favorite charity at your death and the death of your wife. You will never see it again, but you can take the tax deduction and the increased cash flow from the income and use it to buy a life insurance policy.
You then put the life insurance policy into an irrevocable life insurance trust so that when you die, your family will get the value of the property that was transferred.
Everybody wins. You win because you sold the property and did not pay taxes and you get income. The charity wins because it gets the money, and your family wins because it gets the money you would have left them anyway.
David F. Woods, CLU, ChFC, LUTCF, is CEO of NAIFA and president of LIFE. Contact him at firstname.lastname@example.org.