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Real Estate Operations

Pepperdine Charitable Remainder Trust vs. Market Sale

What is the Pepperdine Charitable Remainder Trust (CRT) ?

The Pepperdine Charitable Remainder Trust is a transfer of property to a charitable trust or charitable gift annuity that pays you an annual income for life (or a term of years). In other words, by donating property to Pepperdine, you will receive an annuity based on the full fair market value of the property you donated. The plan effectively avoids capital gains taxes, makes you eligible for a charitable income deduction, and allows you to contribute to the distinctive mission of Pepperdine University.

What type of assets can be used?

The most commonly used assets are stock and real estate. However, most any marketable asset can be used. For example, royalties, or even cash might all be ideal assets for a CRT. And remember, the more the asset has grown in value, the more benefit you will receive because a CRT avoids capital gains taxes.

How a Charitable Remainder Trust Works:

STEP 1
You donate an asset, such as stock or real estate, to a Charitable Remainder Trust

STEP 2
Pepperdine pays you, your spouse, and/or another person an annual income for the rest of your lives (or for a term of years) based on the full fair market value of the asset.

STEP 3
You receive an immediate income tax deduction that can put additional cash in your pocket every year up to six years. Remember, since capital gains taxes are avoided,more money is left to be invested for you. Look carefully at the sample comparison below. Notice how much after-tax spendable income you can earn using a CRT (line 14).

Sample Comparison:
Outright Sale vs. the Pepperdine Charitable Remainder Trust*

  INCOME OUTRIGHT SALE PEPPERDINE SALE
1. Net Sales Proceeds $1,000,000 $1,000,000
2. Less: Tax Basis $100,000 N/A
3. Net Long Term Capital Gain (1-2) $900,000 None
4. Blended Federal/State LTCG tax Rate  x 22.905% N/A
5. Federal/State LTCG Taxes $206,145 None
6. Net After-Tax Proceeds (1-5) $793,855 $1,000,000
7. Pre-Tax Earnings/Annuity Rate x 6% x 6%
8. Pre-Tax Return $47,631 $60,000
9. Federal/State Income Taxes(@ 41.045%) ($19,550) ($24,627)
10. After Tax Earnings $28,081 $35,373

Income Tax Deduction

11. Income Tax Contribution Deduction None $437,090
12. Total Cash Savings From Deduction (11x41.045%) None $179,404 
13. Annual Cash Savings for 6 years (12x1/6) None $29,901

Total Benefits

14. Yearly After-TaxIncome    
Years 1-6 (10+13) $28,081 $65,273
Years 7+ (10) $28,081 $35,373

Assumptions: A market value of $1,000,000; a 41.045% combined federal/state income tax rate; annual earnings of 6%; a tax basis of $100,000; a couple age 75; and a Federal Mid-term Rate of 4.2%.

Principle Benefits to you from the Pepperdine Charitable Remainder Trust

  1. You, your spouse, and/or another person receives an annual income in the form of a fixed or variable annuity.
  2. The annual income is based on the full fair market value of the property, without reduction for capital gains taxes. Thus, the annual income is greater than the income from the investment of after-tax proceeds from an outright sale of the property.
  3. You pay no capital gains taxes on your asset's appreciation in value, thus preserving more of the proceeds for investment.
  4. Pepperdine would serve as a trustee of the charitable trust, freeing you from management responsibilities. In some cases, if desired, you may serve as trustee. Direct deposit of the annuity to your account is available.
  5. You are entitled to an charitable income tax deduction which can put cash in your pocket over a six-year period, by reducing your income taxes.
  6. The asset will not be subject to estate taxes or probate.
  7. Pepperdine receives the asset when the trust ends and uses the asset for the educational purposes you select.
  8. If desired, insurance may be used to replace the asset in your estate for the benefit of your heirs. If handled properly, the insurance proceeds are received by your heirs free of estate taxes.
  9. Minimizes or avoids the risk, costs, delays, and effort of a property sale. Your benefits begin immediately.