CHARITABLE GIFT PLANNING PROPOSAL Joshua Avelar’s Texas Tech University School of Law
Jul 29, 2015
The Client Background
Adrian J. Contreras 27 years old. Not
Married. Has a dog-looking son
named Diego who is 3 years old.
The Client Adrian is a world-famous Electronic Dance Music DJ
called “DJ Nightcrawler.”
Has $20,000,000 in total assets. Earned an adjusted gross income of $1,000,000 in
2014
The Strawberry Farm
Adrian owns a strawberry farm in Poteet, TX.
He won the farm in a bet on San Antonio Spurs v. Dallas Mavericks game.
Just like most times, the Spurs won.
The Strawberry Farm Adrian wants to show his appreciation to his
hometown Spurs for all that they do for the community.
The Strawberry Farm Adrian would like to
leave some of the lucrative strawberry farm to the Spurs' public charity, Silver & Black Give Back, in his will.
This is a 501(c)(3) public charity.
The “Will Way”(Addressed to Adrian from Hereafter)
You would like to leave 10% of the strawberry farm, worth $1M, to Silver & Black Give Back in your will.
The other 90% of the farm would go to Diego.
The “Will Way” Under the Will idea,
Silver & Black Give Back would get $100,000 worth of land when you die.
Diego would get $900,000 worth of land. Seems like a good idea for Deigo!
But wait…. Uncle Sam would take
$360,000 from Diego because of a 40% estate tax.
This would leave Diego with $540,000 worth of land from the strawberry farm.
My proposal: Give a remainder interest in the strawberry farm
to Silver and Black Give Back.
This gift will result in $139,450.32 in money saved from the current income taxes you owe.
You currently owe in $353,045.75 in federal income tax.
The Value of Your Gift Given your age and life
expectancy, the IRS would value your gift at $352,170
This would be a gift you could make under IRS regulations.
The Money You Would Save
Using the IRS tax rates, you would have $139,459.32 in money saved from taxes.
Use this money to purchase a Life Insurance Policy for Diego!
The Irrevocable Life Insurance Trust (ILIT)
You could purchase an ILIT to avoid present and estate taxes for you and Diego.
You could only gift $14,000 a year to do this; here is how.
The Insurance Policy State Farm’s Life Insurance Policy Calculator
estimates that it would cost you $788.78/mo; $9,066.43/ yr for 15 years to purchase $581,705 of coverage.
This is $41,705 more in asserts than Diego would receive if you were to leave him 90% of the Strawberry farm in his will.