How to Get Money From An Illiquid Asset and Not Pay Uncle Sam

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6a017c332c5ecb970b01901c236980970b-320wiYou own an illiquid asset (land, buildings, etc) and you’d like to sell; but, you don’t want to get hammered with capital gains taxes (now at 20% in 2013).   That’s a situation many people find themselves in.

One solution worth discussing with your CFP® professional and an estate planning attorney is a charitable remainder trust (CRT).

Here’s the short version:  You can gift the property into the trust.  This lets you sell the building without paying taxes on the increased value and invest the sale money – all of it – into passive investments (stocks, bonds, mutual funds, ETFs, etc.), and take a large charitable deduction in the process, because the assets will ultimately go to charity; but, in the meantime, you can increase your cashflow.

Not bad:  You’ve achieved a huge charitable deduction, sold your property and avoided taxes, increased your cash flow, and helped a charity!

But, what if you the money to go to your children?  Simple:  Use the money you saved on the taxes to purchase a life insurance policy.  It wouldn’t be surprising to find that the amount they receive from the life insurance would be greater than the value of the property… and they’ll likely receive those proceeds tax-free!

As they say, don’t try this at home.  Talk with your professionals about this.

Jim

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RESOURCES:

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742. IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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