Dilemma: How to get maximum value from a highly appreciated asset - i.e. NOT LOSE A LOT TO TAXES!

Ray & Reba Ranchers Beach house & 20 acres Worth $1,000,000 Worth $1,000,000 Cost Basis of $100,000 Cost Basis of $100,000

1. Sell property (Cash Sale) 2. Pay Capital Gains Tax (15% Federal, 9% State) 3. Invest net proceeds ($784,000) at 5% 4. Receive $39,200 annual income from investment for 25 years ($980,000 total) 5. At Ray & Rebas death, children inherit remaining funds - after paying estate tax (45%) - $431,200 Scenario #1

Ray & Reba Rancher $1,000,000 $784,000 invested at 5% $980,000 Income for 25 Years Heirs Cash sale of property $431,200 net to heirs at Ray and Rebas death (after estate taxes) $216,000 - Capital Gains Tax $352,800 – Estate Tax

1. Donate property to a Charitable Remainder Trust 2. CRT sells property with no Capital Gains Tax 3. Invest net proceeds ($1,000,000) at 5% 4. Trust pays $50,000 annual income to Ray & Reba for 25 years ($1,250,000 total) 5. At Ray & Rebas death, charity receives assets remaining in trust ($1,000,000) Scenario #2

Ray & Reba Rancher Charitable Remainder Trust CRT: $1,000,000 invested at 5% $1,250,000 Income for 25 Years Charity Donation of Property to CRT $356,940 Income Tax Deduction $1,000,000 to Charity upon Ray & Rebas death $0 Capital Gains Tax $0 Estate Tax Sale of property within CRT (NO CAP GAINS TAX) -$85,666 Income Tax

1. Donate property to a Charitable Remainder Trust 2. CRT sells property with no Capital Gains Tax 3. Invest net proceeds ($1,000,000) at 5% 4. Trust pays $50,000 annual income to Ray & Reba for 25 years ($1,250,000) 5. Use portion of that income to fund a Wealth Replacement Trust, with heirs as beneficiaries – net annual income = $40,700 ($1,017,500 total) 6. At Ray & Rebas death, charity receives assets in the Charitable Remainder Trust & heirs receive assets in the Wealth Replacement Trust Scenario #3

Ray & Reba Rancher Charitable Remainder Trust CRT: $1,000,000 invested at 5% $1,250,000 Income for 25 Years Charity Donation of Property to CRT $356,940 Income Tax Deduction $1,000,000 to Charity upon Ray & Rebas death $0 Capital Gains Tax $0 Estate Tax Sale of property within CRT (NO CAP GAINS TAX) Wealth Replacement Trust Heirs Ray & Reba fund a Wealth Replacement Trust with a portion of their CRT-derived income ($9,300) Ray & Rebas heirs receive $784,000 as beneficiaries. -$85,666 Income Tax