Martha sat in her attorney's office describing
her plans for the distribution of her estate.
"Well, let's see now. I want to leave the crystal to
my sister Harriet. I should do something for my brother Charles, although
he's so successful he really doesn't need an inheritance from me.
I'll just leave him a token of my affection - perhaps the grandfather
clock from my husband's estate.
"I want to provide generously for my son, Tim, and my
daughter, Julie," Martha continued, "but I'm not sure it's necessary,
or even a good idea, to leave them all of my estate. We taught them
to work hard and be self-reliant and nothing should change that.
"Now there are three others I need to tell you about
. . . and they are very unusual," she added slyly. On hearing those
words her attorney leaned closer and Martha went on:
"Oh, yes. These people tell me they never have to pay
income taxes. Not only that, I never have to pay gift taxes or estate
taxes on anything I give to them. But here's what is even more interesting:
Whenever I make gifts to them, I get to write it off on my income
taxes!" Martha smiled at her attorney's puzzled expression and finally
confided that these "people" actually were several worthwhile not-for-profit
organizations (including us).
Increasingly, people like Martha are telling their advisers:
"My children are grown, educated and on their own. I have given them
a good start in life. I want to provide for them after my death but
I don't feel I need to leave my children everything.
"I would do them no favors by giving them an instant
fortune. I've worked hard; I've been successful; life's been good
to me. Now I want to give something back. I want to do something for
humanity. It's a matter of my personal philosophy."
For these individuals, their charitable beneficiaries
- school, house of worship, health institution, social service organization,
cultural foundation or others - may be every bit as important as the
"natural" objects of their bounty. And if that's the case, then some
remarkable estate planning ideas are possible. Our staff would be
pleased to help explore ways by which you can add immense personal
satisfaction to your plans - plans that make the statement: "I was
here; my life was important . . . I made a difference."
A Case Study in Charitable
Occasionally one hears of a situation that
evokes the thought: "This is what estate planning is all about!"
Sylvia is a 77-year-old retired teacher who has always lived
frugally. She has amassed, through purchase and inheritance,
the sum of just over $620,000 in U.S. savings bonds (Series
E and EE). She's unmarried, but has three brothers she wants
to benefit. She also told her attorney she wants to provide
for our future and other important organizations.
Sylvia's attorney didn't know the exact amount
of unreported interest tied up in the savings bonds, but estimated
that it exceeded $300,000. He explained to Sylvia that the bonds
will be taxable in her estate or in the hands of family members
who receive the bonds meaning they will be subject to
income tax on all accumulated interest. More than $80,000 would
be lost in federal income taxes alone, assuming heirs are in
a 28% tax bracket. The bonds'
value also would be subject to federal estate tax. Solution? Sylvia's attorney suggested
she establish a charitable remainder unitrust in her will and
specify that the trust will be funded with the savings bonds.
The trust would last for 20 years and make payments to her brothers
(or to the children of any brother who dies prior to termination
of the trust). Tax results?
"First of all," her attorney explained, "there
won't be any income taxes on the savings bonds when they are
cashed in by the trustee, because the unitrust is tax exempt.
The interest on the bonds will be passed through to your brothers
as part of their annual unitrust payments and taxed as ordinary
income. But the trust doesn't lose anything to tax. Furthermore,
your estate is entitled to an estate tax charitable deduction.
If the trust has a 6% payout, roughly 30% of the bonds' value
will be a deductible bequest ($180,000). That deduction will save considerable estate taxes. Sylvia liked the idea of reducing taxes,
but was particularly pleased that her brothers would start receiving
income from a larger asset pool. Most satisfying was her ability
to provide about $620,000 (or more) to worthwhile causes when the
A "Temporary Gift" That Beats Estate Taxes
Evelyn, age 70, worked side-by-side with
her husband, Raymond, in the printing business for nearly 40
years. They sold the business for $16 million several years
before Raymond's death, and Evelyn never remarried. Her own
health is reasonably good. Evelyn has two daughters, ages 36 and 40.
"I want to make sure my children don't lose too
much to death taxes when I'm gone," Evelyn said to her attorney,
"and I'd also like to do something in Ray's memory."
Her attorney was familiar with a special charitable
giving plan called the charitable lead trust that has a unique
ability to reduce or eliminate gift and estate taxes. He put
together some "what-if" numbers for Evelyn:
"You could transfer, say, $10 million of securities
to a trust that will pay exactly $600,000 annually for 25 years
to qualified organizations," he began. "At the end of the 25
years your daughters would receive all the trust assets. If
the trust investments follow historic patterns, we would expect
to have more than $20 million in the trust by that time, even
with the $600,000 payout to charity. Of course, there are no
"There would be a gift tax return to file, but
you wouldn't owe any tax because of a large gift tax charitable deduction,"
he continued, "and there would be no estate tax on the trust
assets either, even if the children eventually receive more
than the original $10 million."
Evelyn replied that she liked the idea of relocating
a large part of her estate out of range of estate taxes, especially
when it meant a huge bequest to support our organization ($15
million over 25 years), all in Raymond's memory.
Not many people share Evelyn's tax problems, but
please contact our office if a charitable lead trust might make
sense in your planning.