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How To Sell Your Real Estate With A Charitable Remainder Trust

A Charitable Remainder Trust can be a great way to sell real estate. There are many benefits to using a CRUT, such as avoiding capital gains taxes and getting a charitable deduction. In this blog post, we will discuss some of the benefits of using a CRUT to sell your property, how to go about doing it and we will also compare the process of selling real estate with a CRUT to not using one.

Why use a Charitable Remainder Unitrust to sell your real estate?

Charitable remainder Unitrusts (CRUTs) are a form of tax-deferred account, much like an IRA, that are designed to incentivize charitable giving in exchange for significant tax benefits: tax deferral and the ability to lower your tax rate via income smoothing.

We offer three basic forms of Charitable Remainder Unitrust: the standard CRT, the NIMCRUT, and the Flip CRUT. These formats carry similar benefits — they are all tax exempt, you get a charitable deduction when you put assets into each, and you’ll leave the remainder for a charity at the end.

Overview of how a Charitable Remainder Trust works

How to sell your real estate with a Charitable Remainder Trust?

If you are considering using a CRUT to sell your property, there are some things you should keep in mind. First, you should be aware of other tax advantaged options you may have to sell your property. If you want to move forward with a CRUT, you can work with Valur to find a CRUT that meets your needs. There are many different CRUTs available, so it is important to set  one up that suits your needs. Once you are done with that and ready to sell the property, you:

  1. Need to make sure that your property is free of debt.
  2. If your property has any debt, it will need to be paid off before you can donate it to a CRUT.
  3. Then you need to gift your property to the CRUT (we provide documents and process to do so). You cannot sell your property before the property is gifted to the CRUT.
  4. Once your property is in the CRUT, the trust can then sell the property with you as a trustee directing the sale.
  5. As a final requirement the property can be sold to almost anyone, excluding a family member.

How does using a Charitable Remainder Trust compare to not using one?

It is very situational dependent, but here we will run through a scenario where someone is selling an investment property that doesn’t qualify for the personal exemption.

Our client Laura invested in a Los Angeles property 13 years ago with her partner. She paid $750,000 — those were the days! — and it’s now worth $3,500,000. Laura would like to sell her property, and while she has considered further real estate investments in the past, given the current climate she’d rather invest her gains in a diversified portfolio of assets.

Up-front deduction

The first benefit Laura will receive when she puts her property into a CRUT is an immediate tax deduction. There’s some complicated math here mandated by the IRS, but the bottom line is simple: She’ll get to deduct about 10% of the current value of the property she puts into the trust. In this case, that’s a $350,000 deduction on her ordinary income. Since she lives in a high-tax state, the tax savings are substantial: That $350,000 deduction translates into cash savings of about $175,000.

No taxes on sale

So Laura starts about $175,000 ahead of the game. The biggest benefit of a CRUT, though, is that Laura gets to defer all of the taxes—state and federal—she would otherwise have owed on her big gain. Instead of paying $1,000,000 in taxes (assuming a 36% tax rate), she’d get to keep that money and invest it inside the trust.

What would all of these tax savings, investment gains, and withdrawals mean for Laura’s bottom line? After 45 years (the expected length of the trust based on IRS estimates), if Laura has her money in a Charitable Remainder Trust, she and her family will end up with about $21.8 million in total payouts. If, instead, Laura had kept her money in a regular, taxable investment account, she would have instead ended up with about $15.6 million.

In other words, by leveraging a CRUT, Laura and her family are able to pocket an extra $6.2 million. In addition, Laura and her family will create an additional $11 million that they will use — consistent with the CRUT’s charitable mandate — to support causes they believe in.

Next Steps

In conclusion, selling real estate with a CRUT can be a great way to save money on taxes and create more wealth for yourself. If you are considering selling your property, we encourage you to learn more about Charitable Remainder Trusts with our comprehensive guide.

About Valur

‍At Valur we built a platform to give everyone access to the tax and wealth building tools of the ultra-rich like Mark Zuckerberg and Phil Knight. We make it simple and seamless for our customers to take advantage of these hard to access tax advantaged structures so you can build your wealth more efficiently at less than half the cost of competitors. From picking the best strategy to taking care of all the setup and ongoing overhead, we make it easy and have helped create more than $500m in wealth for our customers.