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Tuesday July 16, 2024

Case of the Week

George's "Green Gift Now" Unitrust IV


George Green was a man of humble beginnings. George was both resourceful and determined to succeed. He enrolled in chemical engineering and studied diligently. His diligence was quickly recognized by the faculty. After graduating with honors, he became a graduate assistant and earned a master's degree in engineering. He interviewed and became a product development engineer with a company that built emissions control equipment for automobiles. Soon, George met Helen and they married.

George started a company and initially did environmental consulting. As soon as he could gather and borrow the funds, he started a company that produced components for emissions control equipment. After a terrific struggle, the business took off and George began to manufacture probes for company smokestacks. When asked if that was a good business, George responded, "It is a great business. Companies buy my probes to measure their smokestack emissions. When the government regulations change, they have to upgrade and buy my newer probes!"

George incorporated the probe manufacturer as Green Probe. Enjoying being an entrepreneur, he contemplated the opportunity to purchase a company that built converters for automobiles. He bought the assets of that company and transferred them into a new business, Green Converter. Finally, George started a third company to build "smokestack scrubbers" that would clean the emissions from the smoke of power plants. Since there was a huge increase in the cost of energy, power companies began to build more plants and his "smokestack scrubbers" from Green Scrubber were in great demand.


Fourteen years ago, George funded a unitrust with the Green Converter stock and then the trustee sold all of Green Converter's assets to General Auto. Several years later, George sold Green Probe to Major Power Company. Over the years, the unitrust has grown to over $10,000,000 and George and Helen are not in need of income from the trust. He and Helen would now like to fund a major building at their favorite charity. But they need to make a $2,000,000 gift for the naming of the "Green Center." How can they accomplish their goals?


His CPA reviewed the situation and offered a suggestion. George and Helen retained the right to select charities for the remainder of their unitrust. Since they do not need income from the full $10,000,000, the CPA suggested that they make a $2,000,000 gift from their unitrust to fund the Green Center. They could do so by irrevocably designating their favorite charity as the remainder recipient and as the income recipient of 20% of the trust. This would accelerate part of the trust to charity during George and Helen's lifetime. Under the trust doctrine of merger, their favorite charity will own 20% of the unitrust and the trustee may distribute $2,000,000 outright to their favorite charity.

A smiling George and Helen watched their trustee hand the $2,000,000 check to the President of their favorite charity. An added bonus of this gift was another charitable tax deduction. Based upon the 5% trust payout and their ages, there was a deduction for the value of the income interest transferred to charity. This new deduction of over $600,000 will save about $200,000 in taxes over the next three years.

George and Helen are very pleased with this plan. They attended the dedication of the Green Center and were delighted with both the gift and their added charitable deduction.

Published September 15, 2023
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