Family Legacy Unitrust Edge

What is a legacy?  To many people, it is the estate that they leave their heirs after their deaths.  It is the culmination of prudence, wisdom and intelligent financial planning and may provide one a great feeling of satisfaction.  However, a legacy does not necessarily need to start after our deaths nor does it need to be confined solely to providing assets and income for our heirs.

The Family Legacy Unitrust Edge (“FLUTE”) has been created to help families establish lifetime legacies in a unique manner that simultaneously addresses social and family needs.  The FLUTE is designed for wealthy individuals who realize the importance of “giving back” to society in recognition of the personal success they have enjoyed during their lifetimes.  The FLUTE allows an individual the opportunity to assist the charity(s) that he or she admires, while at the same time improve his or her financial situation as well as enhance long-term generational asset transfer values for the family.

While most of us support our favorite charities on a regular basis, a substantial gift is often not contemplated during our lives because of the vagaries of our financial situations and the potential effect that a substantial gift may have on our heirs.  The FLUTE is designed to overcome these issues by addressing the major planning concerns that face all successful people and afford the donor the satisfaction of seeing the benefits of personal philanthropy during his or her lifetime.

The Program:

There are many established methods of donating funds to charitable organizations.  They range from the most basic forms of giving (cash) to very sophisticated modes as evidenced by private foundations and charitable trusts.

The Family Legacy Unitrust Edge (FLUTE) is a multi-dimensional program that addresses three key financial planning concerns that face high net worth individuals and families today:

  • Income Tax Planning
  • Estate Tax Planning
  • Charitable Gift Planning

The Family Legacy Unitrust Edge is combination of three, time tested financial planning techniques united into a single program to effectively give large sums of money to charitable beneficiaries while establishing substantial immediate income tax deductions for the donor(s) and discounted, leveraged gifts to the donor’s heirs that are free from estate and income taxation.

The FLUTE is a combination of several time tested financial planning techniques. With each of these techniques being well established under the Internal Revenue Code, the FLUTE achieves a powerful synergy by merging three distinctly different concepts into one program.  They are:

  • Charitable Lead Unitrusts
  • Tax Advantaged Investments (e.g. Municipal Bonds, equities, etc.)
  • Tax Advantaged Life Insurance

Charitable Lead Unitrusts:

In essence, the FLUTE is a flexible plan where the donor(s) may contribute cash or other property to a charitable lead unitrust that has been established for the benefit of one or more charities for a specified period of time.  Each year, the assets of the trust are valued and a pre-determined percentage of the trust’s assets are paid to the charity(s) annually for the term of the trust.

In exchange for the irrevocable gift to the FLUTE, the donor is entitled to a charitable gift income tax deduction in the amount of the present value of the anticipated stream of payments to the named charity(s) in the year in which a gift to the trust is made.  Typically, this income tax deduction is 75-80% of the money or property contributed to the Family Legacy Unitrust Edge.

The difference between the original contribution and the income tax deduction realized by the donor is called the “remainder interest”. In essence, the remainder interest is that amount that remains in the trust at the time of trust termination (usually the donor’s lifetime or a period of years not to exceed 20). The remainder interest will be a gift by the donor to his or her heirs, who might be children, grandchildren or other individuals.

Tax Advantaged Investments:

The Family Legacy Unitrust Edge  is qualified grantor trust.  This allows for the creation of the immediate upfront charitable gift income tax deductions that are an important element of the program.  The Internal Revenue Code provides that in order for the donor realize current income tax deductions for charitable gift contributions made to the Family Legacy Unitrust Edge, the donor must declare the taxable income generated by the trust each year as if it were earned by the donor personally and, effectively, recapture the upfront deductions over the life of the trust.

The Family Legacy Unitrust Edge minimizes or eliminates the recapture of these deductions by optimizing the use of tax-favored investments that generate little or no taxable income for the trust.  Hence, if the trust does not generate taxable income, then there is no taxable income for the donor to declare on his or her personal income tax return and, in turn, no recapture of large upfront income tax deductions taken in early years of the program. This position is supported by a detailed opinion letter issued by PricewaterhouseCoopers, LLP.

Tax Advantaged Life Insurance:

As the FLUTE is intended to serve both the charitable beneficiaries as well as the remaindermen, universal life insurance policies play a vital role in the entire architecture of the FLUTE.  Properly structured, an individual or survivor life insurance policy will provide a substantial benefit to the family (remaindermen) which is free from income, capital gains, and estate taxation.

Flexibility:

The Family Legacy Unitrust Edge offers a donor a wide degree of planning flexibility and can be adapted to each donor’s needs and circumstances.  For example, contributions of property to the trust can be made in one year or spread over several years in order to maximize personal tax planning goals or conform to budgetary needs.  In addition, several charities can be accommodated through the use of a single trust.  Further, trustees can be empowered to change charitable beneficiaries if desired or, if it is advantageous, the donor’s private foundation can be named as the trust’s beneficiary.

Summary:

The Family Legacy Unitrust Edge is a straightforward combination of three time tested financial planning tools joined together into one program in order to achieve optimum success for our clients who are concerned about charitable giving and income tax and estate planning issues. The designers of the FLUTE program have combined three basic, IRS codified concepts to avoid potential pitfalls associated with risky, “over the top” planning techniques that may be offered to wealthy individuals today.  Our opinion letter from PricewaterhouseCoopers, LLP bears testimony to this.  The cornerstones of the FLUTE are:  substantial ongoing gifts to charity, Internal Revenue Code based income tax deductions, traditional estate transfer techniques and organizations like Spectrum Financial Solutions, LLC to make them a reality.

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