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Good Counsel: The benefits of donating real estate to a charitable remainder unitrust
Donating long-held rental property is an outstanding way to realize the many benefits of establishing a unitrust with Stanford.
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By Jeff Underwood, Senior Associate Director, Office of Planned Giving
Though rental real estate can be a great investment, many people reach a point in their lives when they no longer wish to deal with the hassle of managing properties. A charitable remainder unitrust can be an excellent way to continue receiving income while saving on taxes and building a legacy at Stanford.
Donors typically fund a charitable remainder unitrust with cash or appreciated stock, but other assets can also be used. The feature story in this issue of Remember Stanford shares how Jimmy, MS ’66, MS ’67, PhD ’72, and Jean Kan, a Stanford librarian emeritus, used a rental property to realize the many benefits of establishing a unitrust with Stanford.
When donors establish a charitable remainder unitrust at Stanford, they are entitled to an immediate charitable income tax deduction for a portion of the gift value. The named beneficiary(ies) of the unitrust will receive an income stream for life and/or a term of years, and the remaining funds will support Stanford when the trust terminates. Once property is transferred to the unitrust, the trustee can then sell it. Because of the unitrust’s tax-exempt status, it does not pay any tax on the capital gain, and the full amount of the sale proceeds is invested in a portfolio of marketable securities or, when eligible, alongside the Stanford endowment. The income paid to the named beneficiary(ies) is taxable to them and varies from year to year based on the annual fair market value of the unitrust.
What sort of real property should be considered for a charitable remainder unitrust?
The ideal property is one that has appreciated in value over the years, is marketable and ready to sell, and is free from existing debt. The property can either be income producing—as in Jimmy and Jean Kan’s case—or non-income producing, like a vacation home or even a primary residence that the donor no longer occupies. Donors can manage the sale of the property by serving as the initial trustee of the unitrust, after which Stanford could potentially serve as successor trustee. Or donors can ask if Stanford would agree to serve as initial trustee to manage the sale.
When donors create a charitable remainder unitrust with Stanford, they are invited to become a member of Stanford’s Founding Grant Society, a legacy society that honors those who have made a planned gift to the university.
My colleagues and I would be happy to help you and your advisors decide whether a charitable remainder unitrust or other type of planned gift is right for you. To learn more, please contact the Office of Planned Giving at (650) 725-4358.