Using real property to generate income, support charity.
By Ret Boney
At age 72, retired and living in Honolulu, a wealthy man faced terminal cancer and the challenge of making his estate plans before his death.
With end-of-life expenses to consider, grown children he wanted to provide for, and the Lutheran Church he cared deeply about, he turned to planned giving to achieve several goals, says Liza Hentz, assistant vice president for planned giving at the Wachovia Center for Planned Giving in Winston-Salem, N.C.
The donor had earned his wealth as a real-estate broker and, while living in Anchorage, had acquired a piece of rental property valued at $5.7 million, property he was not able to manage or arrange to sell because of his illness.
As one piece of his estate planning, the donor established a net-income charitable remainder unitrust, which he funded with his Anchorage property, and which would ultimately be used to establish a memorial endowment fund at the Lutheran Church Foundation, a national group based in Chicago.
According to the arrangement, says Hentz, the donor gifted the property to the church foundation, which then acted as trustee, taking over the mortgage note and responsibility for managing and ultimately selling the property, a sale it made several months later.
In exchange for the gift, the donor received a charitable deduction of about $870,000 on his taxes.
Also stipulated in the agreement, for a period of 10 years, the donor would receive the rental income from the trust and, after the property sold, would be paid 6 percent of the value of the fund each year.
Within a year of establishing the trust, the donor died, at which point the income from the trust was paid to several beneficiaries he had named in the agreement.
For 20 years after the donor’s death, the income beneficiaries will continue to receive 6 percent of the value of the assets annually, after which all the assets of the trust, referred to as the charitable remainder, will go to the memorial endowment at the Lutheran Church Foundation.
“Through careful estate planning,” Hentz says, “the donor was able to establish and endowment fund, take a sizeable tax deduction and receive income during the last stages of his life.”