SELLING THE RANCH AND PAYING NO CAPITAL GAINS TAX

SOURCE: RECER EXPERIENCE

A Hollywood couple, in their 70s, came to me for personal estate planning and told me that they owned a ranch outside Los Angeles, that they no longer could get out there to enjoy it and that they were ready to sell.

Each had been in the movie business as secondary actors. The lady had also been a costume artist.

"But," the man said, "we will have to pay lots of capital gains tax."

He went on, "I paid only $25,000.00 for the ranch back in the '40s and it is now worth about a million dollars."

As is often my practice when dealing with highly appreciated property, I suggested the use of the Charitable Remainder Trust.

While the concept was new to the childless couple, they pondered it carefully as we sat at their kitchen table.

After some discussion, the man said, "If I understand it correctly, we will have a stream of income for life after the trust sells the land."

"That's right," I nodded.

"Well," he said, "that looks pretty good ... but, is there any way that we could also have an immediate bonanza of money?"

"Why don't we split the ranch?" I said.

"We could put half the ranch into the trust ... and you could continue to own half."

"Then, when the land is sold, you would have 1/2 in the form of a bonanza and 1/2 in the form of a stream of income for life."

Both of them brightened and, almost simultaneously, said, "Let's do it."