Income Trust
Do you have any assets that don’t pay well
and you wish you could convert to income?
You can, while also avoiding the capital
gains tax. For example, let’s say you have some raw land or stock
that pays no dividend. You can use an Income trust to convert
this asset into another asset that pays income to you. Here are
the steps:
- Your attorney draws up an income trust
- You transfer your asset that pays low
or no income to the trust
- The trust sells the asset (the trust pays
no taxes)
- The trust reinvests into investments that
pay income—immediate annuities, bonds, preferred shares,
etc
- You receive income
There is one catch to this beautiful arrangement.
At least 10% of your original transfer to the trust must eventually
pass to the charity of your choice (at the end of your life or
your children’s lives). That’s why this is often called a Charitable
Remainder Trust. But many people make the mistake thinking they
must leave large amounts of assets to charity when only 10% is
required.
Any financial advisor or estate planner can
help you put this together and increase your income. There is
also an income tax saving involved which your planner can explain.
Other Income Alternatives
Can Real Estate Increase Your Income?
Have lower interest rates and the reduction
of corporate dividends caused a drop in your income? If so, you
may want to consider including real estate investment trusts (REITs)
as a portion of your portfolio.
Congress created REITs in 1960 as a way for
all investors to own large-scale, income-producing commercial
real estate. REITs are similar in concept to mutual funds in
that they use professional management to oversee the investments.
The difference is that REITs use a diversified portfolio of income-producing
property or mortgage loans instead of stocks or bonds.
REITs offer:
An attractive dividend yield: REITs
must pay out 90 percent of their taxable income as dividends to
shareholders. In exchange for this high payout, REITs do not
have to pay corporate income tax. This results in higher dividends
than many stocks and bonds.
Predictable income: Rental
income is the prime source of earnings for REITs. This income
is often locked-in by long-term leases with tenants and can add
to the stability of the REIT. However, the lengths of the leases
depend on the types of properties owned. For instance, storage
facilities are rented out month-to-month, whereas industrial buildings
are often leased out for 10 or 20 years. Of course, economic
conditions will affect occupancy rates and rental income.
Tax benefits: You might
not have to pay tax on all the income you receive from a REIT,
since a portion of that income could be a partial return of your
investment principal. This would reduce the cost basis of your
investment.
A hedge against inflation: Rents
generally rise with rising prices.
A unique asset class: The
real estate market tends to move in different cycles than the
financial markets. Therefore REITs can provide a hedge against
the volatility and under performance of other assets.
Liquidity: Because REITs
are traded on the major exchanges their shares are easily bought
and sold.
Remember that REITS are shares and can fluctuate
as much as any other stock and there is no guarantee of profit
or a continuing dividend.
Get
Your FREE Retiree Financial Guide
|
