Allan and Jane are married and are the owners of a successful family business structured as a C corporation. They have decided to cash out a significant portion of their equity in the company to diversify their investments and plan for their future retirement. Given their desire to share ownership with their employees and potentially benefit from tax advantages, they opt to establish a non-leveraged ESOP.
With approximately 40 employees, Allan and Jane set up the ESOP and sold 50% of their shares in the company to the ESOP trust. This allows them to provide ownership opportunities for their employees but also provides liquidity for their finances.
After the sale to the ESOP, Allan and Jane receive cash proceeds from the transaction. They decide to reinvest these funds into qualified replacement property (QRP), consisting of a mix of stocks and bonds from publicly traded operating corporations. This strategy aims to further diversify their investment portfolio and potentially generate additional income for their retirement years.
However, Allan and Jane also want to leverage their assets for charitable purposes while maximizing tax benefits. They decide to transfer $800,000 worth of their QRP stock into a charitable remainder unitrust (CRUT) for their lifetimes. The CRUT is structured to provide them with a 5% unitrust payout annually, ensuring a steady income stream while allowing for potential growth of the trust assets.
By transferring the stock into the CRUT, Allan and Jane can bypass capital gains taxes on the sale of the stock. Additionally, they are eligible for an income tax deduction based on the present value of the remainder interest passing to charity after their lifetimes. This fulfills their charitable goals and provides them with valuable tax advantages and financial flexibility in their retirement planning.
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