By Joe T. Buerkle
I think many of my fellow attorneys in our area when proposing charitable giving as a part of an overall estate plan are very often met with resistance along the lines of "I am my favorite charity."
That is to say, the client worked long and hard and saved to create their estate and has little desire to give any part of it to a charitable institution, unless it may be a small part left to their church as a cash bequest.
That is not to say that there aren't a number of well-disposed individuals who would love to help their favorite institution of learning or organized charitable cause, but they don't often think in very large terms.
One way that I have found as an acceptable method which works for individuals who might not otherwise be disposed to include charitable giving in their plans is the charitable remainder trust. The following is a case where the charitable remainder unitrust was used with a couple of twists that made it work really well.
The client was an elderly individual who had acquired a substantial estate and, as is frequently the case, a good portion of that estate was invested in equities (stocks, bonds and other securities which, if sold, would have immediately resulted in a substantial income tax, even with capital gains treatment).
It is worth noting that even though markets are currently substantially depressed, there are still a number of individuals who acquired equities years ago and would still have the resultant income tax bite if they were to cash out, even in a down market. It is probably worth pointing out that perhaps cashing out in a down market is all the more reason to consider this approach.
The individual involved had a life expectancy which, under the new tax act, would still give them a stepped-up basis (advanced age). The client didn't want to wait for the stepped-up basis in order to allow a better enjoyment of the assets held in the portfolio which, realizing that reinvestment, could bring a higher current return.
This client fully understood that there would be an immediate tax deduction against current income taxes for a charitable gift. That was attractive to the client in the income bracket where he resided. His only child also had a substantial estate so that leaving the property outright to the child, even though there was a stepped-up basis, would only create additional estate tax problems for the child.
There were six primary charities which were candidates for the client's benevolence. A decision was made to set up a charitable remainder trust providing a life income to not only the client but to the client's only child so that the typical charitable remainder trust situation was modified by making it a trust with life income for multiple lives rather than just one.
We were able to enhance the situation by the choice of a trust company in a state where there is no state income tax resulting in the additional enhancement of a tax favored trust situs, thus enhancing the overall performance of the trust during the income years. Each of six charities was named as to the remainder interest, all qualifying for purposes of charitable gifts.
A number of low basis securities were chosen and given to the trustee, who immediately sold those securities and reinvested them in a different portfolio which threw off a larger current return, meaning that the client got more income than the client was receiving prior to the gift.
I view this as a fairly sophisticated use of the charitable remainder trust and one which accomplished a number of things. Not only were some very worthy charitable interests made aware of the fact that they will ultimately share in a substantial trust corpus, but also the client obtained an immediate income tax deduction.
So, who was the favorite charity in this case? I would submit that it was both the client and the client's chosen list of charitable beneficiaries, not to mention her child and grandchildren.
While all of the unique aspects of this particular case study are not necessarily present in every use of the charitable remainder trust, nor is this the only type of charitable remainder trust which can be used, it does reflect that with proper planning among the group of professionals which worked on this particular client's task, several unique aspects were realized.
Most of the charities in the Leave a Legacy organization recently begun in our community, for whom this article was written, will provide assistance to the client and to the client's professional advisers to come up with some truly unique results. Might I suggest that you give them a call about your favorite charity.
Joe T. Buerkle practices law at the firm of Buerkle, Beeson, Ludwig, Jackson & Boner L.C. in Jackson, with a concentration in estate planning and commercial practice.