Giving a Planned Gift—Painlessly

By Michael Monhollon

When my father, Jimmie Monhollon, died at the beginning of 2021, Hardin-Simmons University received about $300,000. You would think that the $300,000 bequest came at the expense of my siblings and me, but it did not. The charitable gift did not reduce what we received. It added to it, courtesy of a bit of estate planning and the Internal Revenue Code.

Before Dad retired from the Federal Reserve Bank of Richmond—and the beginning of his 10-year career on the Hardin-Simmons faculty—Mom and Dad bought an 800-acre farm east of Richmond, Virginia. Its only agricultural product was hay, but there were woods, a 10-acre lake and even a small cemetery. My parents created a subdivision of five-acre lots at one end of the property. The cost basis was so low that every lot sale created a tax liability of $10,000 to $15,000. Dad didn’t like it.

“You don’t have to pay taxes on those sales,” I told Dad. “Gift the lots to a charitable remainder trust, which will pay you income for life with the remainder going to…who would you like to donate money to?”

“Hardin-Simmons University.” He had started teaching at Hardin-Simmons the year before, and he believed in its mission of providing an education enlightened by Christian faith and values.

“OK,” I said. “The trust will sell the lots, and because it’s a charitable trust, it won’t owe any taxes on those sales. The sale proceeds won’t be diminished by tax liability, so there will be more capital to generate income for you and Mom.”

“I like that.”

“It gets better. You get an immediate tax deduction for the present value of the money that will eventually go to Hardin-Simmons, so that’s more money in your pocket, outside the trust.”

“What about you kids?”

At the time, I wasn’t financially secure enough to recommend this course of action if it would cost us kids, and my siblings were struggling more than I was. “The extra income you get from the lot sale proceeds can be used to pay premiums on a second-to-die life insurance policy,” I said. “We can put the life insurance policy inside an irrevocable trust to make sure it isn’t part of your taxable estate. Your kids will get the proceeds tax-free.”

My parents liked the idea, and that’s what we did. The fair market value of the lots was $400,000. After the trust paid my parents about $16,000 (or 4%) for 25 years, $300,000 remained in the trust for Hardin-Simmons. The death benefit of the life insurance policy, originally $400,000, had grown to $620,000, which went to my brother, my sisters and me.

Consider the powers of multiplication: If my parents had sold the lots themselves, the proceeds would have been $400,000. Factor in the then-capital-gains-tax-rate of 28%, and you get $288,000. There would have been no charitable deduction. Four percent of $288,000 would have been $11,520 per year. If the principle had depleted at the same rate as in the charitable trust, $216,000 would have gone to me and my siblings after the death of our parents. Hardin-Simmons would have gotten nothing.

Instead, Hardin-Simmons got $300,000. My siblings and I got $620,000. The initial charitable deduction gave my parents an immediate pay-out. On their deaths, the total that went to people—and an institution—that my parents cared about came to $920,000, more than four times the $216,000 my parents could have passed on in the absence of planning.

The moral of my story: Plan your estate. The pay-off may well be greater than you can even imagine. To get started, contact Ash Wright, Vice President for Advancement and Engagement, at (325) 670-1260 or plannedgiving@hsutx.edu.

Michael Monhollon, an attorney licensed in Texas and Virginia, joined the HSU faculty in 1998, three years after his father. Having served 16 years as the Dean of the Kelley College of Business—succeeding his father in that role—he is now the university’s Associate Provost and Accreditation Liaison.