Smart Money: Senior care providers can benefit significantly from a donor trust

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William C. Fisher
William C. Fisher

-By William C. Fisher, President, Investment Advisory Group, LLC

Have you ever heard of a Charitable Lead Annuity Trust (CLAT)? The donor-planning vehicle has been available for decades but has not been widely used because financial conditions were not right. Now they are.

The “perfect storm” of low interest rates and depressed asset values make this an ideal time for donors to set up a CLAT. As a senior care provider, you can benefit significantly from this.

Using an enhanced CLAT strategy, the donors can transfer assets, including bonds issued by a charity, cash, stocks and real estate to a trust for a set term of years. Each year, payments are made from the trust to a designated nonprofit. When the trust term expires, there will be a lump sum payment to the charity. What is left goes to the heirs.

By moving assets out of the estate, the CLAT also shelters the potential appreciation from estate taxes. What makes this especially attractive now is the historically low rate the IRS uses to determine how much the CLAT must pay out. The current rates (2%), coupled with many severely depressed asset values, make it likely the assets will appreciate well beyond the current rate in coming years.

This is one of the only transfer devices currently used that can discount the value of the original assets passed down, resulting in little or no taxes, while allowing the donor to fulfill charitable desires and pass wealth to the next generation. Everyone wins.

Nonprofits can use the enhanced CLAT concept to get donors to fund the interest and principal payments of a bond issue. Think of the concept as current giving and not just planned giving.

It is estimated that you need a net worth of about $5 million to make the technique effective. Imagine the savings in interest and fees if a senior living provider can get its top donors to work with the community in buying part or all of a bond issue. The annual interest is gifted back to the community and over the life of the bond, the bond issue is refunded.