Donate your house to charity and make money doing it
From the Chronicle’s Surreal Estate column, “When Andrew isn’t managing his investment portfolio and his substantial charitable donations, he enjoys cooking delectable soufflés and working in the lush backyard of the home he shares with his partner. At 55, the soft-spoken gent is already retired and now lives mostly off a trust created from the proceeds of his real estate investments.”
“…Andrew chose a road less traveled — or at least a road typically traveled only by the wealthy. He decided to give his house to charity and, at the same time, live off the proceeds for life. In other words, he created a charitable remainder trust.”
“He paid a lawyer about $3,500 to create a CRUT that was written to pay him 6 percent of the total value of the trust’s assets annually. He also named his domestic partner as a beneficiary. Andrew gave his Berkeley house to the CRUT, which then sold the little house without having to recognize the capital gains and reinvested the proceeds in bonds and low-risk index funds. Andrew’s income from the trust — about $30,000 a year (almost his entire income now) — is, of course, subject to income tax. But Andrew’s income from the trust is spread over many years — and if Andrew had sold the house himself he would have had to pay all the capital gains in a single year at a higher tax bracket. There is also the benefit of a substantial income tax deduction because, in the end, the trust will go to charity.”
“Indeed, these trusts are not for the faint of heart. They are convoluted entities with myriad limitations in all directions. There are complicated rules about who can administer the trust, how much and how little the trust can pay out each year and what will happen if the beneficiaries die early or if the charitable organization folds. After 20 minutes speaking with a specialist on these tortured legal tools, I began to yearn for the poetic elegance of an old-fashioned stock account spreadsheet. Still, such trusts may come in handy for those who have assets subject to capital gains and little retirement income.”
