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I just want to mention that after I retired I wanted to convert some stocks into a better income stream. The dividends on Gap, Inc. stock were less than 1% of their value. For a more secure income stream for myself and my wife, I looked at charitable remainder funds, unitrusts, etc. A significant incentive was the avoidance of capital gains taxes. (There are all sorts of options that can still leave inheritance for children, etc.)

I started with a "major" charity, set up a unitrust with a 7 3/4% payout rate based on Jan 1st valuations. I ran into major problems on that one. When Fidelity Investments came out with a Charitable Remainder Trust, I checked it out to my satisfaction and set that up, followed by joining the pooled income fund portion when that was added. I am very satisfied with their program, especially since I am familiar with some of the funds that they invest in.

The Charitable Remainder Trust permits me to make gifts to charitable groups (IRS defined) with $250 minimum gifts but serves me well to support charities I specify. (I happen to have the forms on my desk right now for my current list.) Where I choose less support I make less frequent gifts. I funded this ($10K min.) with appreciated stock. When I funded it, I got a charitable deductions for tax purposes of 100% of the market value of the stock.

A pooled income fund within this trust pays income from the dividends and interest that fund collects from its investments, currently about 5+%, for our two lifetimes. After that, the fund is transfered to the Trust which is dispersed by whoever we appoint as a person to direct that dispersing or as otherwise directed. The point is that we have control over where it is dispersed (a "self directed" setup).

I think it is a great way to guarantee an income stream, participate in stock market growth, avoid long term capital gains, and get a charitable deduction at the same time, as well as moving assets out of an estate. By yearly contributions I simplify tax carryovers of charitable gifts to <30% of AGI.

I have also set up funds for relatives, taking advantage of the $10,000 per year per person gift provision. These funds eventually feed back into our Trust. The "gifts" are the "non-charitable" part of the contribution.

Good luck. Hope this if of use to some of you!!

gapfan :-)
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gapfan

Appreciate your posts. Would like amplification on your $10,000 annual exclusion gifting. Do you invest directly in mutual funds in their names or in trusts? How do these funds "feed back into our Trust"? Is there a relationship between your gifts to relatives and the Charitable Remainder Trust?

Were the unitrust problems tax related or otherwise?

spudman
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spudman

After I got into the Charitable Remainder Trust and the pooled income fund within that trust, I contributed Gap, Inc. stock to a pooled fund set up within my account but with joint beneficiaries of my wife's brother and his wife. The stock was from a joint account for my wife and me. The charitable portion of the stock contribution is based on life expectancies of the two beneficiaries and worked out to about 26.5% of the contribution. (Fidelity will give this information before you do any transfers.) We thus contributed sufficent stock so that the remainder (73.5%) of the contribution when added to other gifts we had given, including direct gifts of stock, did not exceed $40,000 which is what the two of us can give to the two of them without tax consequences in a single year.

This year we did the same for my brother and his wife in another pooled fund account, and we added a similar amount to my wife's brother and his wife's account. Since these are part of our Trust, we get the benefit of the charitable gift portion, and eventually the value of the pooled funds will return to our Gift Trust.

Giving $10,000 worth of stock saved me capitol gains taxes of $2000 (used to be 28%) and gives me another $2650 of deductions for taxes (that rate is 28%+). Because Gap has been so good for me I have been diversifying as fast as I can, and this works great. Our brothers are 71 years old so this adds to their retirement incomes. We also contribute to our own pooled fund. Goal is to have charitable contributions near 30% of AGI. Started planning gifts on alternate years so could use standard deduction on other years but Gap grows too fast.

The pooled income fund's returns since inception (12/7/94) are 6.3% in income plus 6.55% in growth for a total of 12.84% per year (data as of 6/30/98). The funds are: Fidelity Fund (5%), Spartan High Income (10%), U.S.Bond Index Fund (40%), Equity Income Fund (15%) and Spartan Short Term Bond (30%). The emphasis is income of course.

The Unitrust problem was a situation where I gave Gap stock at about $58 a share with instructions to diversify into specific areas. For more than a year I asked, wrote, called, etc. to get details. Over a year later I was notifed that the portfolio had "dropped" in value so payments would be much smaller. After that, they finally sold the Gap stock at about $23. They had never diversified. We settled at a loss to both. There were no tax problems there.

Dispersement of funds from the Charitable Trust are handled by us while we are alive, and someone we designate (or by will) for after we are gone. Works great for various groups we support, and in cases of Colleges or Cultural groups (Local Orchestra, PBS, Library, etc.) my previous employer provides matching gifts.

Hope this helps. Ask if you have more questions. Good luck.

gapfan :-)
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I have also set up funds for relatives

Can I join your family?

Ron :-)
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That post was from 1998 and the poster evidently hasn't posted in years, as they have no posts or activity.
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"the poster evidently hasn't posted in years, as they have no posts or activity. "

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Some folks would call that a near ideal retirement.

Howie52
What?
Me worry?
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