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Tuesday October 4, 2022

Case of the Week

George's "UT to Green Gift Annuity" Conversion


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 work ethic was quickly recognized by 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 Wilson and they married.

After saving $5,000, he convinced Helen that it was time for him to start his own venture. George started a company and initially did environmental consulting. As soon as he could gather and borrow the funds, he also started to produce 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 and then the government changes the rules! Then, they all have to buy upgraded probes!"

George incorporated the probe manufacturer as Green Probe. Ever the entrepreneur, he later had a chance to buy a company that built converters for automobiles. He bought the assets of that company and transferred them into a new business. 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 coal-burning plants and his "smokestack scrubbers" from Green Scrubber were in great demand.


Eighteen years ago, George funded a unitrust with the GC stock and then GC sold all assets to General Auto. Fourteen years earlier, George sold Green Probe to Major Power Company. Over the years the unitrust grew to over $10,000,000. Four years ago, George and Helen made a $2,000,000 gift from the unitrust to fund the "Green Center" at Favorite Charity. But they want to make another larger gift to Favorite Charity. Can they do this? George called their CPA Arnie Arnst again and asked, "What should I do now? We would like to make another large gift, but the funds are in our unitrust. The unitrust is back up to over $9,000,000."


Arnie reviewed the situation and offered a suggestion. George and Helen have been saving most of their payouts and now have $3,000,000 in tax-free bonds plus their unitrust. Arnie suggested that they convert the unitrust to a gift annuity. George and Helen like the fixed payouts of the gift annuity, so they decide to do the conversion.

Based on their ages, the remainder value of the unitrust is $6,371,190 and the income value is $2,628,810. George and Helen exchanged the $2,628,810 income value for an 8.4% gift annuity from Favorite Charity. The annuity pays $220,820.04 per year. George, who never misses a senior special, thinks that they will live on about one-third of this amount each year and use the rest to buy more tax-free bonds.

In addition to another charitable deduction of $1,513,315 for the gift annuity, they now will accelerate the remainder gift to Favorite Charity. The $6,371,190 value will be used to double the size of the Green Center, and to fund an operations endowment to maintain the center. Both George and Helen are delighted with this excellent enhancement to their legacy. As George exclaimed, "We have come a long way, and it has been a great trip!"

Published November 26, 2021
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