Case Study: A Twice-Blessed Gift

 

Case Study: A Twice-Blessed Gift

A Presentation Case Study
Case study posted in Bequest on 28 September 2006| 5 comments
audience: National Publication | last updated: 18 May 2011
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Abstract

Annie Arnold is a retired day school administrator with a modest estate. In this case study, Annie shows that with a testamentary trust and a little time, a little can go a long way for both her family and charity.

The Facts:

When Annie Arnold told her closest friend she was planning to make a twice-blessed gift, her friend asked, "A what?" "I'm planning on using the same asset to make a gift to my family and then to my favorite charity," she told her friend. "I'm going to give the gift twice!"

Annie worked all her life, from her teen years until retirement at age 65. She had a married son and three grandchildren she loved dearly. She had been the administrator of the Community Day School for the last 30 years and had seen her students grow and blossom. Now, her former students were sending their own children to the day school. That is where the "twice-blessed gift" idea was born.

The Challenge:

give-it-twice-1Annie Arnold's estate was modest, about $270,000 which included the value of her modest home. With her retirement income, Social Security, Medicare, and careful planning, she managed just fine; however, there wasn't enough to make a major gift now. Annie owned a $200,000 asset that she planned to pass to her family. But how could she balance her love of family with her passion for young children who needed a quality day school experience? She wanted to give the asset to both her family and the day school, but giving half to each just didn't feel right. How could Annie benefit her family and her day school?

The Solution:

Annie Arnold posed that question to her financial advisor, Karen Simmons, a former student and close friend. Karen said: "Why don't you give the gift twice?" Give the $200,000 first to your family and then to the Community Day School. Karen went on to explain that Annie could make a provision in her will that upon her death, the asset would be transferred into a trust. The trust would not need to be a charitable trust that qualifies for a charitable estate tax deduction because the value of Annie's estate is below the amount on which estate tax would be imposed. The trust document would instruct the trustee to invest the asset and pay all income and gains (annually or otherwise stated) to Annie's family until $200,000 of income was paid out. Then, the $200,000 trust principal would be distributed to the Community Day School. "In effect, given enough time, you will be able to give the asset twice; once to your family and once to charity." Annie liked the idea, especially because her family would receive an income stream rather than principal. "That will help them manage better," she said, "it's not always good if the children and grandchildren get too much at once."


give-it-twice-2


The Result:

Annie talked to her family and told them about her plan. They were delighted. She then talked to the Community Day School administrator, and she was delighted too. In fact, the Community Day School initiated the Annie Arnold Scholarship. Annie had her attorney draft a new will that contained the "give it twice" plan. Now Annie tells all her friends, "I have made a twice-blessed gift." Indeed it will be!


Composer InteractiveCopyright © 2006 Composer Interactive, LLC and Planned Giving Design Center, LLC. All rights reserved.

This presentation is provided courtesy of Composer Systems, LLC using Composer Interactive Presentation Systems and is provided for educational purposes only. Persons making gifts to charity should review their plans with their own professional advisors. Individuals named in this case study are fictional with any relationship to real persons coincidental.

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Time Line

What would be the estimated timeline for the completion of this type of transaction?

Twiced=-Blessed Gift

Generally it takes about 11-12 years depending on how the trust is invested. Investment professionals like this because they manage the funds over this time before they go to surviving family members.

Life Insurance?

This is a great name for the concept. Could the gift be more maximized by the use of life insurance? The existing asset during her life could spin off enough income to pay the premiums for a $200,000 contract that would also grow at a rate to repay the premiums paid from the investment account. The ultimate benefit would be $200,000 to each group immediately at death instead of 10-12 year delay.

Charitable Gift Annuity?

Could this be done using a CGA? If so, how would it be done?

Twice Blessed Gift

Assuming she is in an effective tax bracket of 30%, then the gross return on netting 6% annually is 8.5%. This should be a relatively safe long term assumption with low-end risk. Then it would take over 16 years for the school to receive its gift (seems very long, to me). Consider using the annual income, or both income and principal (if it can be afforded) to purchase a life insurance policy to maximize principal at death.
 
 

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