A Stadium, Charitable Trusts and a Family Legacy
Case:
The Meyers family (three brothers, two sisters) inherited a sports complex from their parents 10 years ago. The sports complex consists primarily of a baseball stadium that seats about 7,500, complete with locker room and gym facilities. Each of the siblings inherited a 20% undivided interest in the complex and they have been successful in attracting various minor league baseball teams to play there during the baseball season. It has actually been quite a nice investment for them, generating substantial lease income during the season. However, each of the family members is now over 60 years old and they would like to consider selling the property.The sports complex is located in a small city in Arizona with a population of about 50,000. Over the years, the City Council has discussed the possibility of purchasing or building a stadium to attract a minor league baseball team to the city. The Council has even considered the possibility of attracting a major league team to the city for spring training. Since the people of the city are very sports oriented and many feel that a team would attract additional tourism and commercial development, the Council has discussed the possibility of floating a bond issue to cover the costs of either purchasing or building the stadium. Such a bond issue would probably be for about $5,000,000, with any other development costs underwritten by various corporate sponsors.
The Meyers siblings have approached the City Council regarding the sale of the sports complex to the city. Over the past few months, they have been discussing price and terms, but at this time no formal agreement has been reached. Even though the family members feel that they can probably sell the complex for about $7.5 million, they think that perhaps they would accept a reduced price if somehow the sale could be coupled with a charitable gift. In fact, since their basis in the complex is so low, each of the family members is very concerned about capital gains taxes, which would be incurred in an outright sale.
Question:
Each of the family members is very generous, a trait that each of them "inherited" from their parents. They have decided that if the city desires to purchase the complex, they would like to see the stadium named after their parents. They are willing to make a substantial contribution to the city in return for naming the stadium. However, each of the family members is interested in receiving at least a lifetime income stream from his or her property interest in the complex. The City Council members, on the other hand, realize that they still have to "sell" the bond issue to the voters, and a charitable gift of a portion of the property to the city would go a long way in convincing the voters. What is the best gift scenario to fulfill the objectives of not only the Meyers family, but also the City Council and the voters?Solution:
The City Manager, who worked for many years as an estate planning attorney, came up with a plan that he felt would fulfill the objectives of all parties involved. First of all, the sports complex would be appraised by a qualified appraiser. Assuming that the appraisal came in at $7.5 million, each family member would gift $500,000 of value to the city, resulting in the city's receiving a total gift of $2.5 million. Secondly, each family member would use his or her remaining interest in the property to fund a charitable remainder unitrust. Therefore, each trust would be funded with $1,000,000. The five charitable trusts would then sell their $1,000,000 interests to the city (not subject to any prearranged sales, of course).The trusts would pay income to each family member (and his or her spouse, if desired) for their lifetimes.
Regarding the charitable trusts, the City Manager had one additional idea to help convince the voters to approve the bond issue. He stated that each of the family members could name the city as one of the charitable remaindermen of the charitable trusts. In this way, the city could know that it would not only receive a nice gift up front ($2.5 million), but would also receive an additional gift upon the termination of each trust. "Sweetening the deal" could help the bond issue pass with a substantial majority.
After the plan was explained to the family members, each of them was very pleased with the outright gift/charitable remainder trusts combination. They would each receive a charitable income tax deduction up front for the outright gift plus the gift for creating the charitable trust. Secondly, they would bypass the capital gains on the sale of the property and receive lifetime income for themselves (and for their spouses, if desired). Lastly, the stadium would be named after their parents, a legacy that would continue long after they are gone.