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Annual Giving

Planning Your Gift

Transferring Assets to Heirs

Committee on Development Meeting

February 23, 2001

In our last planned giving minute, we discussed contributions to Hamilton — outright and in trust — of appreciated securities. The same principle that we discussed then applies today: you may be working with potential donors to Hamilton who wish to accomplish multiple objectives — philanthropic and personal planning — through a "planned" charitable contribution.

Today, it is timely to discuss potential strategies with stock in a great company that has declined in value from its high but remains at a price greater than what the prospective donor paid for it. Fundamentally, the company is sound and the donor has every reason to believe that it will increase in value to its high and beyond.

The strategies to be discussed depend upon current gift and estate tax law, which, as you know, may be changed. Strategy 1 may meet personal planning objectives — in planned giving we hope to "do well by doing good," while Strategy 2 may meet philanthropic as well as personal planning objectives.

In either case, the donor avoids income and capital gains taxes on the assets given to heirs or placed in trust.

Strategy 1. Use the annual gift tax exclusion to transfer some of these shares to heirs. If, for example, XYZ stock is trading at $75, down from $100, the donor can transfer 133 shares rather than 100 shares to each heir. A husband and wife could transfer 266 shares to each heir. The market decline provides a 33% bonus in building wealth for heirs.

Strategy 2. Fund a charitable lead trust with shares of XYZ and other assets. A lead trust provides payments to Hamilton for a term of years after which the principal - and all appreciation - is transferred to heirs.

The value of the interest passing to heirs is "discounted" according to an IRS formula providing significant gift and estate tax savings. Usually lead trusts are funded with assets expected to appreciate, using XYZ shares provides an additional 33% discount. Further, the value of the remainder passing to heirs decreases as interest rates decline. The IRS interest rate for March, April and May is as low as it has been since 1996.

Charitable lead trusts may be established during one's lifetime or by Will. While economic factors suggest establishing a lead trust now, for potential donors who believe that gift and estate taxes will be eliminated, a testamentary lead trust may accomplish personal planning and philanthropic objectives in the event the laws do not change before the Will becomes effective.

For the next 10 years, Hamilton will receive distributions from a lead trust established by the Will of Esther W. Couper. During her lifetime, Mrs. Couper, who will be featured in the next issue of Hamilton Plans, completed a number of outright contributions to Hamilton and established two charitable remainder trusts from which Hamilton will share the remainder value. It gives me great pleasure to introduce Dick Couper to say a few words about planned giving in general and lead trusts in particular.

Additional information will be supplied upon request.


At Your Service

Hamilton makes a number of resources available to you, including the following:

Email Ben Madonia '74 or Joni Chizzonite or call 1-866-729-0317 for more information.