Let's dive deeper into financial planning topics today with a recent case study.
A business owner and his spouse were preparing to sell a highly appreciated, long-held rental property. While a 1031 exchange was an option, they had no desire to remain concentrated in real estate or take on the management burden of another property.
At the same time, they had three clear priorities:
- Reduce the significant tax impact of the sale
- Create reliable income for their lifetimes
- Expand their long-term charitable giving
The Strategy
Working alongside a local estate planning attorney, we designed a coordinated approach centered around a Charitable Remainder Unitrust (CRUT).
Instead of selling the property outright, the asset was contributed to the trust prior to sale. This created several key advantages:
- Immediate charitable income tax deduction based on the projected remainder gift
- Ability to defer capital gains tax on the sale inside the trust
- Lifetime income stream (structured as second-to-die)
- Eventual transfer of remaining assets to their existing donor-advised fund
Coordinated Tax Strategy
Because the charitable deduction was substantial, it created a unique planning opportunity in the same tax year.
We coordinated with their broader financial plan to:
- Execute a Roth conversion from pre-tax retirement assets
- Offset much (or all) of the conversion tax liability using the charitable deduction
This allowed them to:
- Reposition assets into tax-free growth for the future
- Reduce the impact of upcoming required minimum distributions (RMDs)
- Improve long-term tax efficiency for both themselves and their heirs
The Outcome
This integrated strategy allowed them to:
- Transition out of a concentrated real estate position
- Establish a predictable lifetime income stream
- Help reduce current and future tax exposure
- Expand their charitable impact in a structured, intentional way
Most importantly, it aligned their financial decisions with what mattered most to them—wise stewardship, generosity, and long-term flexibility.
If you would like to explore your own goals and situation, please contact us today for a complimentary consultation.
These results are for illustrative purposes only and should not be deemed a representation of future results. Circumstances, solutions, and/or results are based on specific facts tied to unique client situations. Favorable results cannot be guaranteed even in a similar scenario. Each specific set of circumstances will differ depending on client needs and profile. Actual results may be more or may be less than those shown. Past performance does not guarantee future results. This assessment is that of the writer, and not the recommendations or responsibility of Cetera Wealth Services, LLC or its representatives. The solutions presented in this scenario are offered through Ready Wealth Advisors.
Such trusts are used to develop a vehicle for donations to a favorite charity, which also allows for the reduction of income taxes through a charitable deduction and favorable tax treatment at the date of the gift by non-recognition of built-in capital gains. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing such strategies.
Generally, a Donor-Advised Fund is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, which is called a sponsoring organization. Each account is composed of contributions made by individual donors. Once the donor makes the contribution, the organization has legal control over it. However, the donor, or the donor's representative, retains advisory privileges with respect to the distribution of funds and the investment of assets in the account. Donors take a tax deduction for all contributions at the time they are made, even though the money may not be dispersed to a charity until much later.
Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax-free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.