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Roger L. Neu

 

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Charitable Remainder Trust

Question: Should I establish a charitable remainder trust before the sale of my business?

A charitable remainder trust can be established for the donation of stock to a charity. The charity sells the stock and does not have to pay any tax on the sale. Therefore, all of the proceeds can be invested. Seller retains a lifetime interest on earnings on those proceeds (which can be structured in various ways) which may generate more income to the Seller than if the Seller had retained the stock, sold it, paid the tax and invested the after-tax proceeds. Charitable remainder trusts can be very beneficial to the Seller in some situations and, obviously, is a benefit to the charity. The key, however, is that a charitable remainder trust needs to be established before the execution of a letter of intent. Many times, charitable remainder trusts are not used by Sellers because Sellers are reluctant to contribute their stock to a charity without the assurance that the stock will be sold. The time to investigate a charitable remainder trust is when you are thinking about selling your business, not after you have already started the sales process.


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