Council Hears Program on Investing in Hard Times

The Medical Research Council presented a reception and economic forum on tax strategy, "Investing in Hard Times," at the offices of HMRI Board of Directors President Roger Engemann on the evening of November 13, 2002.  Hosted by Engemann and moderated by Board Treasurer Harold J. Meyerman, the presentation featured two tax attorneys, Paul L. Basile, Jr., and Steven E. Trytten.  It was attended by members of the Medical Research Council and their guests.

The program began with a historical analysis of the investment market by Engemann, who is chairman, president and CEO of the investment advisory firm Roger Engemann & Associates, Inc.  The speakers and audience agreed that despite the current poor economic climate, his analysis showed the continuing probability of growth in the markets over the long term.

Basile and Trytten described the gift tax deductibility of charitable giving instruments such as the remainder trust and the lead trust.  They indicated that while many donors have an understanding of the remainder trust, the charitable lead trust has been little used until lately.

Harold Meyerman reminded the guests that important decisions must be made during good times and bad, and that there are, in fact, some very smart things investors can do during the current difficult times.  "That is why the Council suggested this evening's program," he said.  Guests were reminded to consult their financial advisors for details.Steve Trytten, Mike and Linda Doyle.

Charitable Lead Trust

°The charitable lead trust is established with a term of years, and the charity receives an annuity for the term specified.  The charity receives the same percentage of the trust's assets each year, so as the total value increases, the charity receives more.  For example, if the trust is worth $1 million in the first year and the annuity is 6%, the charity receives $60,000.  If the trust doubles in value the next year to $2 million, the 6% given to the charity is $120,000.

°When the trust ends, the assets pass to a remainder person, designated at the time the trust is established. 

°The trust can be set up to produce a high deduction in the first year, but it requires the donor to report income earned, even though it is paid to the charity in the annuity.

Advantages of the Charitable Lead Trust

Accelerated Deduction.  If a donor has sold a highly appreciated asset, the donor may expect that in the future that income may drop considerably.  It is good planning to have a very high deduction in the high bracket year, even if a donor must report that income in lower bracket years, since the income and the tax are then spread over many years.

Discounted Gift to Family Members.  Under present law, the value of a gift is determined at the time the gift is made.  The family remainderman must wait for the charity's term to expire.  So the value of the remainderman's interest is discounted for the time cost of waiting.  The cost of making the gift is lowered, because the value is decreased by the value of the annuity interest donated to charity.

Tax-Free Appreciation.  When the trust assets are transferred to the remainderman, any appreciation on the value of the assets is free of either gift or estate tax.