Charitable giving a mutually beneficial relationship

Rick Eckhardt is a senior vice president with Bank of America in San Antonio. He is the fiduciary executive for the Southwest Private Bank, which provides estate planning, credit and investment services in Texas, Oklahoma, New Mexico, Nevada and Arizona

How often do we wonder what our estate will be assessed in taxes?

Probably not often enough.

After all, who wants to spend much time thinking about proverbial “death and taxes”? With the recent phenomenal growth of investment markets, many investors are discovering that they really do have a great deal to look forward to and that usually includes the taxing authorities that will benefit from their estates.

Often the experienced investor who has survived the depression era has legitimate concern for his or her ability to meet unanticipated needs and still pass wealth on to future generations. At least the estate tax is predictable. Growth in individual wealth has demanded that many of our clients who previously accepted a modest estate tax burden look for other solutions.

One of our favorite stories involves a retired military widower whose assets over the past decade appreciated to quite unexpected levels. His “buy and hold” investment philosophy paid well but left a portfolio of highly appreciated assets with little room for diversification. He just watched as the estate tax liability grew exponentially.

As the estate tax rate exceeded 50 percent, the situation passed the limits of tolerance. The first topic explored was how charitable giving could enhance the lives of descendants.

During our discussions, the permanence of a family foundation began to show appeal. In this case the primary consideration was to provide income to family members with unique financial needs. The final decision was to establish a family foundation that would not become effective until the death of the patriarch.

The plan established Charitable Remainder Unitrusts to benefit children and at some future time, grandchildren, utilizing the client’s generation-skipping tax exemption. Eventually a family foundation will receive the assets from the remaining estate of our client. The total transfer and estate tax burden was reduced to 21 percent with immediate benefits to the children. This is an impressive reduction that could have been further enhanced with income tax savings had the foundation become effective during the widower’s lifetime.

Immediate income tax savings also could have been realized had the client named a charitable organization such as the Health Science Center as the remaining beneficiary of the Unitrusts. By giving a gift—which can be non-restrictive or earmarked for a specific research, education or health care program—to the Health Science Center, an individual can realize immediate income tax savings. This truly is a beneficial relationship for all involved.