BY: Cara Gober, J.D. | Assistant Vice President, Trust Officer
& Caroline Forks, J.D. | Trust Counsel
Meet Jane Claire Green.
She’s 65 and recently retired. She didn’t draw a pension because she worked as a librarian at a private school. Fortunately, she doesn’t need a pension.
An only child, Jane Claire inherited a shopping center–worth around $9 million–when her mother passed away a year ago. She also inherited a few other, mostly illiquid assets–her parents’ large farm and homestead–worth an estimated $6 million.
Jane Claire gets a check from Social Security every month, but it’s the rental income from the tenants in the shopping center that pays her bills.
While she needs the income stream, she doesn’t exactly enjoy the responsibility of managing a strip mall. She wants to travel. And, as a single woman with no heirs, she really wants to leave a significant legacy in her community. Specifically, she’d like to support the work of St. Eligius Equine Therapy.
Jane Claire has always loved horses and has volunteered at this respected non-profit for over a decade. The organization serves autistic children, kids with Down syndrome, and developmentally-delayed children–as well as older clients who are recovering from strokes and PTSD.
Recently, Jane Claire received two unsolicited–and extremely generous–offers from investors seeking to buy her shopping center. Intrigued, she called her CPA (who has worked for the Green family forever).
Their call went like this:
“Steve, if I did sell the shopping center, do you think I’d have enough to fund my retirement, do some traveling, and also make a large gift to St. Eligius?”
“I guess it depends on how extravagantly you want to live and give. But, here’s the bad news: If you do sell, you’re going to have to pay about 27% of that money in federal and state capital gains taxes.”
Jane Claire’s heart sank. “That…that would be over $2 million! I don’t want that! What if… I just left the strip mall to St. Eligius in my will?”
“You could, but…”
“But what?”
“I hate to be the bearer of so much bad news, but…unless Congress acts, the 2017 tax cuts are scheduled to sunset at the end of 2025. If that happens, the exemption for estate taxes is going to drop from its current $13.61 million per individual to roughly half that.”
“Meaning?”
“Meaning if you died after that, your estate would be well above the new threshold. So, a big chunk of that gift you’re wanting to leave to St. Eligius would get eaten up by estate taxes.”
“You’ve got to be kidding me! What can I do?”
“If I were you, I’d talk to someone at a trust company.”
Women & Wealth
More and more women are finding themselves in situations like the one Jane Claire is facing.
Consider:
- According to the IRS, 43 percent of the nation’s top wealth holders (i.e., individuals with assets of $1.5 million or more) are women.
- Women often inherit twice–from parents and then from a spouse/partner.
- Overall, women now control more than half of the private wealth in the U.S.
- Over the next 40 years, $41 trillion in intergenerational wealth is expected to change hands. Forbes estimates that women will inherit 70 percent of that wealth.
- A 2022 study conducted by Indiana University Lilly Family School of Philanthropy found that “85% of affluent household charitable giving decisions were made or influenced by a woman, and significantly more women (42%) than men (33%) spent time volunteering in 2022.”
No wonder so many are looking for help in navigating tricky wealth transfers.
Here’s what Jane Claire did.
The Pros & Cons of Charitable Remainder Trusts
Jane Claire remembered a “Women | Wealth | Wellness” luncheon she’d attended shortly after her mother passed. It was sponsored by Argent Trust Company.
She made an appointment with one of Argent’s trust officers. They met several times to review her financial situation, discuss her philanthropic goals, and listen to her concerns about estate taxes. Together, they created a comprehensive financial plan for Jane Claire.
In that plan, Argent presented Jane Claire with several options for solving her estate tax problem, including the advantages and disadvantages of each option.
The option that most interested her was creating a charitable remainder trust.
Simply put, a charitable remainder trust is a way to donate to charity while still receiving income. Individuals establish such a trust with a donation and get a partial tax deduction. A trustee (ideally an institution like a trust company and not an individual) then manages the trust, paying income to the donor (or some other designated non-charitable beneficiary) for a set time. After that, all the assets in the trust go to the donor’s charity (or charities) of choice.
In Jane Claire’s case, she realized she could put the shopping center into such a trust and accomplish multiple goals:
1| She’d no longer have to manage the shopping center.
2| This gift would bring the overall value of her estate comfortably under the threshold for owing estate taxes.
3|She could continue to derive a pre-determined amount of income from the strip mall while alive.
4| At her death, the property would go to St. Eligius Equine Therapy. The nonprofit would owe no taxes on this gift. If it so chose, it could sell the shopping center and put the proceeds into an investment portfolio that would provide long-term income for the nonprofit.
Jane Claire’s only hesitations were that once established, a charitable remainder trust is irrevocable. Once you create it, there’s no going back. You cannot change the beneficiary or the amount of income you get from it. While this does remove the burden Jane Claire feels when managing the property, it also results in a loss of control.
After mulling all her options, doing some more research, and consulting again with her CPA, Jane Claire decided a charitable remainder trust was her best course of action to achieve her objectives – free up the time she spends managing the shopping center, travel more, avoid estate taxes, provide an income stream and support a charity she strongly believes in.
What about you?
Whether you’re male or female, single or married, you may be in a similar situation as Jane Claire. You may find your tax situation changing by the end of 2025. You have illiquid assets with a low-cost basis and are bracing for significant capital gains hit.
Maybe you want to be more philanthropic?
Or, it could be that you no longer want the day-to-day responsibility of managing a business. You still need income, but you’d rather ride off into the sunset and enjoy life.
If any of those are your issues, and you’d like to see your options, give us a call at Argent Trust Company. We’d love to help you, like we did Jane Claire.
