Case #4 · James J.
Capital Campaign
Giving $400,000 of land to his university without shortchanging his heirs.
The situation
James has a $4 million estate and has served for years on his university's alumni committee.
The capital campaign asked him for $400,000. He owns appreciated development land worth $400,000 but did not want his four nephews and nieces to lose that much of their inheritance.
The goals
- Make a major gift to the campaign
- Keep his heirs' inheritance whole
The strategy: A gift of land plus an irrevocable life insurance trust (ILIT)
- James deeds the land to the university and claims a $400,000 charitable deduction based on a qualified appraisal.
- In his 35% bracket, the deduction saves $140,000 in taxes, which he gives to the ILIT at $35,000 a year for four years.
- Each nephew and niece holds a Crummey power to withdraw a quarter of each premium for 30 days; when it lapses, the funds buy the policy.
- The ILIT is outside James's estate, so the policy pays the heirs free of estate and income tax.
The results
| Capital gain | Bypassed on the appreciated land |
|---|---|
| Income tax | $400,000 deduction, saving $140,000 |
| Heirs | $400,000 inheritance replaced by tax-free life insurance |
| Bonus | He also created a $1.5 million charitable trust for his church |
Figures are illustrative and based on the tax rules in effect when the case was prepared. Results vary.
Could a strategy like this work for you?
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