A Charitable Fairy Tale

A Charitable Fairy Tale

The Magic of Jim and Mary Mitchell
Article posted in Charitable Remainder Trust on 16 July 1999| comments
audience: National Publication | last updated: 11 February 2013
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Summary

The following tale takes a whimsical look at the value of a carefully planned charitable gift. Set in medieval times, A Charitable Fairy Tale was written by the PGDC's Lee Hoffman in response to his children's questions about what he did at work. Since that time, it has been enjoyed by children and adults alike throughout all the land.

By Leland E. Hoffman, Jr.

The following tale takes a whimsical look at the value of a carefully planned charitable gift. Set in medieval times, A Charitable Fairy Tale was written by the PGDC's Lee Hoffman in response to his children's questions about what he did at work. Since that time, it has been enjoyed by children and adults alike throughout all the land.



Once upon a time... there was a young married couple named Jim and Mary Mitchell. After graduating from college, Jim started working for the Very Large Company. As the years passed, the Very Large Company offered Jim the opportunity to buy stock at a very good price. So, Jim bought stock in the Very Large Company every time it was offered to him at a very good price.

And it came to pass that three little Mitchells came to live in the Mitchell home. Jim and Mary were very busy making sure the three little Mitchells were fed, clothed, and that they learned everything they would need to know to go into the world on their own.

One day the three little Mitchells, who were no longer so little, started families of their own, and Jim and Mary found themselves on their own.

The years passed and before Jim knew it the Very Large Company reminded him that it was his 65th year and suggested he take the time to enjoy the good things in life. So Jim and Mary Mitchell decided to count all of the things of value they had collected over the years to see just how many of the good things in life they could enjoy.

As Jim and Mary looked at the list they were surprised to see that many of the things they had collected would still be needed. But, there, at the end of the list was the stock of the very large company. It had grown and grown over the years, and was now worth $1,000,000.

This seemed too good to be true since Jim and Mary had paid the Very Large Company only $100,000 for the stock. So Jim and Mary made an appointment with their Financial Advisor to see how they might make the stock in the Very Large Company produce as many of the good things in life as possible.

The day of the appointment came and Jim and Mary were very excited. The advisor looked at the stock from the Very Large Company and asked Jim and Mary how much they had paid for it. "One hundred thousand dollars" Jim replied proudly. A concerned look came over the advisor's face. "What's the matter?" asked Jim. "Depending on what you decide to do, you may not have a million dollars to enjoy the good things in life," the advisor said. "Why not?" asked Jim. The advisor replied "Because you will have to pay the King for your $900,000 in good fortune." "How much will we have to pay?" asked Mary. "I will prepare a report for you" said the advisor "and I will tell you three things: how much you must pay the King, how much you will have for yourselves to enjoy the good things in life, and how much will be left for the three little Mitchells. In addition, I will prepare my report two ways. First, what will happen if you keep the stock in the Very Large Company forever? Secondly, what will happen if you sell the stock and reinvest it to produce more of the good things in life." And so she did.

And so it was... The advisor's news was not good news.

Indeed, if the Mitchells kept the stock of the Very Large Company, their advisor told them, they would not need to pay the King for their good fortune. However, neither would they be able to enjoy many of the good things in life, fore the stock in the Very Large Company paid but a small dividend.

If they sold the stock now, they would have to pay the King 20% of their good fortune. Furthermore, they would have to pay an additional 5% to the local Sheriff. The remainder would provide for less of the good things in life.

And what of the three little Mitchells? To leave the greatest amount possible, Jim and Mary would have to keep the stock and enjoy the fewest number of the good things in life. "Surely there must be another way?" asked Jim.

"If you could have but one wish for yourselves and your children, what would that wish be?" asked the advisor. The Mitchells thought and thought. "Anything?" asked Jim and Mary in unison. "Anything!" said the advisor.

After much thought, the Mitchells gave the advisor their answer. "If we could have but one wish for ourselves, it would be that we could enjoy more of the good things in life than either of these two options allow. At the same time, we wish our children could have as much as if we kept the stock in the Very Large Company."

"You do not want much, do you?" replied the advisor. "In order to grant your wish I will need to call in the Court Counselor." And so she did.

The counselor came... "What do you desire?" asked the counselor. "We want more of the good things in life than either of these two options have to offer, and we want our children to have as much as they would have if we kept the stock in the Very Large Company."

"You don't want much do you?" said the counselor. "There is a third option. I will grant you your wish, but only upon the following conditions. First, you must promise to give away the stock of the Very Large Company to all the people in the land. Second, you must never ask for it back."

"This seems like a very large price to pay," said Jim. What will we get in exchange for such a sacrifice and what must we do?" The counselor answered "For such a gift, you will be bestowed with many treasures."

"First, you will promise to give the stock of the Very Large Company to all the people in the land. It will be placed in a trust for them immediately. The trust assets will be kept in the Castle where they will be protected by the Castle Guard."

"Second, because you have made such a promise, instead of charging you taxes as if you had sold your stock, the King will instead forgive many of your future taxes."

"Third, since you have established this trust for the benefit of all the people in the land, the King has made it exempt from all taxes. The trust will sell the stock in the Very Large Company and, with the help of your financial advisor, will reinvest the proceeds wisely to pay for all the good things in life you desire.

"Fourth, the trust will pay you eight percent of all of its assets each year, starting immediately. Over your lifetimes, this will give you more of the good things in life.

"Fifth, to enable you to replace for the three little Mitchells the value of the stock you are giving all the people in the land, you must give your children a small portion of the trust's income each year. With my help, the King will allow you to do this without any gift taxes.

Your children will then give this money to the Knight of the Round Table. The amount given to the knight will be invested wisely so that when you and Mary die, the amount given to the Knight of the Round Table will be multiplied many fold and paid back to your children. They will receive an amount equal to the value of the stock in the Very Large Company, just as if you had kept it." And with proper planning, the money the Knight of the Round Table gives to your children will also pass to them free of estate taxes.

"Sixth, on that day, the Castle Guard will release the assets you placed in your charitable trust to be used for the benefit of all the people in the land. If you do these things, your wishes shall be granted."

"Do you mean, that we can enjoy all the good things in life, provide a secure financial future for our children, and make a significant gift to do good things throughout the land?" asked Mary. "Yes" the counselor replied; "It is because of your charitable heart that the King will multiply your treasures."

And so it came to pass... Jim and Mary did these things the counselor advised. The Mitchells left the Very Large Company behind and enjoyed all the good things in life. And when they died, the three little Mitchells, who now had children of their own, received a significant sum from the Knight of the Round Table.

And all the people in the land rejoiced, for after the trust had created all this good fortune for Jim and Mary and the three little Mitchells, it too had grown in value and many good things were done across the land.

To this day the people talk of the magic of the charitable trust and the kindness and wisdom of Jim and Mary Mitchell.


The End


Comparison of Benefits
Jim and Mary Mitchell

A. Input Assumptions #1 #2 #3
  Type of Technique Keep Invest. Sell Invest. Unitrust Std.
  Time Period Projected 1998-2018 1998-2018 1998-2018
  Income Payout Rate All Income All Income 0.08
  Income is Paid Annually Annually Annually
  Investment Period Measured by 2 Lives 2 Lives 2 Lives

B. Contributions
  Fair Market Value of Property 1,000,000 1,000,000 1,000,000
  Income Tax Deduction Permitted 0 0 222,870
  Capital Gains Tax on Sale 0 180,000 0

C. Cash Flow
  Income During Life 551,900 1,201,956 1,505,272
(-) Premiums Paid from income 0 0 229,971
(=) Net Spendable Income 551,900 1,201,956 1,275,301
  Increase in Income over keeping Asset n/a 650,056 723,401
  Increase in Income over Selling Asset (650,056) n/a 73,345

D. Esate for Heirs
  Gross Value of Estate 3,399,564 820,000 0
(+) Life Insurance Death Benefit 0 0 1,529,804
(-) Estate Taxes 1,869,760 451,000 0
(=) Net Estate for Heirs 1,529,804 369,000 1,529,804
  Increase in Estate over Keeping Asset n/a (1,160,804) 0
  Increase in Estate over Selling Asset 1,160,804 n/a 1,160,804

E. Benefit Summary
  Net Income + Net Estate equals
    Total Family Benefit
2,081,703 1,570,956 2,805,105
(+) Endowment to Charity 0 0 1,232,392
(=) Total Benefit 2,081,703 1,570,956 4,037,497

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