Many years ago, Tom and Helen invested $10,000 in publicly traded stock, worth $100,000 today. With a 2% annual dividend, Tom and Helen currently receive $2,000 of income from the stock. Last week over breakfast, Tom wondered aloud if they could get a better income return if they sold the stock and reinvested in corporate bonds that would pay interest of 6%. However, while the income is higher there is little to no opportunity for future growth in the principal.

Tom and Helen thought about selling the stock themselves, until they learned they would then owe capital gain tax on the stock's increase in value ($100,000 - $10,000 x 15% = $13,500) plus any applicable state taxes. In that scenario, they would reinvest their after-tax net proceeds of $86,500 (we'll assume no state tax for this illustration), resulting in just over $5,000 in additional income from a 6% return.

A friend put Tom and Helen in touch with Barnabas Foundation and they learned they could instead contribute the stock to a "Charitable Remainder Trust", or CRT for short. With a CRT, Tom and Helen would receive a charitable deduction when they donate the stock to their CRT and name one of their favorite kingdom causes such as Central Minnesota Christian School as the charitable beneficiary. When the stock is transferred in this arrangement, Tom and Helen avoid the capital gain tax, and they receive an annual income of 7% of the Trust's value. The stock is currently worth $100,000; consequently, Tom and Helen would receive $7,000 of income (7% of $100,000) in the first year. Also, since the Trust would be invested in a diversified portfolio of stocks and bonds, there is growth potential for the Trust above the 7% payout rate.

Tom and Helen decided they would like to receive income payments from the Charitable Remainder Trust throughout their lifetimes, with the remainder balance of the CRT going to Central Minnesota Christian School radio broadcasts in China.

With a Charitable Remainder Trust, Tom and Helen were able to not only make a major investment in a ministry they believe in, but also potentially increase the income they would have received had they sold the stock themselves and reinvested the proceeds.

Want to learn how a CRT can serve your family and ministry goals? Ask for a FREE copy of “Expand Your Impact and Your Income” by simply contacting Kevin Wassenaar from Central Minnesota Christian School at (320) 978-8700 or kevinw@willmarnet.com

*This sample illustration is for educational purposes only and is not intended to be tax or legal advice. Please consult your own advisors.