Charitable Trust

Back in 1987, Dan and LaDonna Gubitz took a risk, followed their hearts, and started a day-care business in St. Louis, Missouri. They invested $20,000, had a good business plan and worked hard for 12 years. By 1999, the original Children's Center had grown into a chain of day-care facilities, and its success caught the attention of a much larger company. The Gubitzes were offered close to a million dollars for their chain of day-care centers by that company, and they accepted. Now semi-retired, they live in a beautiful beachfront home on the island of Maui.

We've all heard of similar success stories of people starting a business, achieving success and making a great life for themselves, but there's more to this story. The Gubitzes did very well for themselves because of their hard work and business planning, but also because they discovered a tremendous tax-saving option for selling their business.

About three months prior to selling the business, the Gubitzes' attorney-Lisa Krempasky of St. Louis-advised them to place their business in a charitable remainder trust before accepting the offer on the business. By doing so, the Gubitzes could save over $300,000 in capital gains taxes on the sale. They could then design their annual income from the trust, qualify for an immediate tax deduction and enjoy complete creditor protection of their funds.

Dan Gubitz carefully studied the differences between the taxable sale of the business and a tax-exempt sale. He discovered that by opting for the charitable trust, they would be making an agreement with the IRS. Instead of paying out 26% in capital gains taxes immediately, they could instead commit to paying a minimum of 10% to a charity at their death through a charitable trust. They took Krempasky's advice and decided to move forward.

"There was just no question as to what we were going to do," said Dan Gubitz. "The difference between the charitable trust numbers and the taxable sale numbers were just too significant and gave us so much more room to do the things we wanted to."

Krempasky introduced the Gubitzes to a foundation, a non-profit organization, which administers charitable trusts for people all over the country. The organization provides educational seminars and material, as well as cutting edge online information, to bring about a better understanding of charitable trust options and implementation. The organization ultimately disburses trust funds to designated charities at the death of the trust beneficiary.

"What we do best is hone in on how the charitable trust can best serve all parties involved-the client, their family and children, as well as charity," says Director Colin Lindsey. "As a result, families like the Gubitzes achieve their goals and dreams by saving more money than they ever thought possible and are consequently benefiting charities all over the country."

Back on their 15th wedding anniversary, Dan and LaDonna went to Maui and Dan told LaDonna that someday they would move there. Now married for 30-plus years, they've fulfilled that dream. The Gubitzes even have a new boat they've named "Someday."

"I don't know if we could have fulfilled this dream had it not been for the charitable trust," said Gubitz. "But more than that for us is the opportunity we now have to benefit children's charities-having been so close to children for so long, we really care very deeply about children in need. Now we can give so much more than we otherwise could have."

Had the Gubitzes not known about the charitable trust, had Lisa Krempasky not advised them to choose the charitable trust, a number of other significant things definitely would not have taken place either.

Besides the tax savings and creditor protection, all investments within the charitable trust compound tax-free. By taking only the income they need and leaving the rest in the trust, the Gubitzes will significantly increase their potential lifetime income as their trust continues to grow.

Initially concerned about the irrevocable nature of the charitable trust, the Gubitzes thought of the inheritance they had hoped to leave for their own children. The organization provided a solution that calmed their fears and replaced their children's inheritance. After determining the annual income they would take from the trust, the Gubitzes-with the help of the organization -purchased a life insurance policy that is funded by the trust. In fact, the life insurance policy sits in an additional trust called a wealth replacement trust. When the beneficiary passes away, heirs receive the full value of the asset that would have otherwise been left to them. The inheritance is tax-exempt also. Part of the organization's administration service includes the concurrent management of the insurance policy-trust beneficiaries need not worry about finding the right policy or paying for it out of their designated annual income.

So what's the catch? This does sound way too good to be true.

There really isn't one. The fact of the matter is Congress established the charitable trust back in 1917. Though it has existed for so long, few are familiar with the option and benefit of setting up a charitable trust. Many have been under the impression that trusts are for the super-rich. Others believe they are giving all their money to charity by setting up a charitable trust. And while a wealthy person can set up a trust to give all of his money away to charity, it is by no means the norm. IRS regulations require a trust beneficiary to commit at least 10% of the trust to a charity or charities of choice. The rest is accessible by the beneficiary as income. Clearly, there are several parties that benefit by the charitable trust, but why does the government allow this program to exist and how do they benefit? The answer is really fairly simple.

Once a trust is set up, there are essentially two types of money in the account. There is the money that a beneficiary will take out and spend as income, and that is taxable. Then there is the money that will not be taken out and spent. Eventually this untouched money will go to charity. A recent study shows that for every dollar a charity spends on a community project or campaign, the government will spend between three and eight dollars. Charities are looked upon as beneficial by the government not only for their obvious humanitarian effects on society, but also as a cost saving entity that saves time, effort and money.

Many are taking notice of the charitable trust these days because real estate values have appreciated so drastically. A family farm purchased 80 years ago for $18,000 may easily be worth $1.8 million today. A charitable trust can make quite a significant difference to the farmer who is relying on his property's value to provide for his retirement. But any asset may be placed into a charitable trust. Anything from jewelry to stocks to a business to liquid cash may be used. Many are now even converting living trusts to charitable trusts for the tax advantages. "

Capital gains tax is the key issue with most people who use a charitable trust," says Lisa Krempasky. "Many would rather keep an asset they no longer need or want than pay the tax. Many people hold on to assets until death because their heirs would get a new cost basis of the fair market value at the person's death."

For Dan and LaDonna Gubitz, peace of mind is founded on the fact that they are able to care for their children and family members, including grandchildren and a great-grandmother, fulfill their dream of living on Maui, and leave a substantial amount of money to benefit needy children. Their trust will roll over into the Dan and LaDonna Gubitz Foundation at their death.

"Who could ask for anything more," says Dan Gubitz. "We are truly blessed."