Turning Property into Income: Financial Alchemy or Your Next Charitable Gift?

This may sound too good to be true: you contribute appreciated property to benefit Massachusetts General Hospital, collect income for the rest of your life and even receive some cash. Better yet, you’ll obtain an income tax charitable deduction and avoid capital gains taxes, too.

Here’s how:

1. You can contribute appreciated property that you’ve owned for longer than one year to a charitable remainder trust to benefit Mass General when the trust ends. Charitable remainder trusts are tax-exempt so, when your trust sells the property, there will be no taxes on the appreciation and the trust can invest the full value of the assets to generate income.
2. The trustee will then make payments to the income beneficiary of the trust (usually you and possibly your spouse or others of your choosing).
3. When the trust ends, the remaining trust assets will pass to Mass General. Because you permanently contribute the remainder of the trust to charity, you receive an income tax charitable deduction for the value of your charitable contribution.

A variation — that also provides cash to you — is to contribute real estate you have owned long-term. You can contribute a portion of your real estate to your charitable remainder trust and keep the other portion for yourself.

For example, let’s say your real estate is worth $500,000 and you transfer a 60% interest to your charitable remainder trust, retaining the remaining 40% interest for yourself. If you and the trustee sell the property, the trust will receive $300,000 (60% of $500,000) and you will receive $200,000 (40% of $500,000). You will owe capital gains tax on the portion you kept, but the income tax charitable deduction from your contribution to your charitable remainder trust will reduce the amount of tax you must pay.

It’s a win-win, twice over: you collect some cash upon the sale; your charitable remainder trust pays income to you or your beneficiary; you receive a charitable deduction; and you make a generous contribution to Mass General.

You don’t have to be an alchemist to realize that in this unique case, you can turn lead into gold — appreciated real estate may be an unexpected way you can support the hospital today.

For more information on creative ways to support Mass General, contact our Office of Planned Giving at mghdevpg@mgh.harvard.edu or 617.643.2220.