Method of capital creation for tax-exempt organizations

Abstract

A capital creation process for a qualified (i.e., tax-exempt) organization to raise funds for capital improvements, subsequently eliminating the obligation to ever repay the debt. The tax-exempt bonds are offered to selected investors in a pool that meets certain parameters that may include age, wealth and affiliation with the tax-exempt organization issuing the bonds. The investor establishes an individual charitable remainder trust with the purchased tax-exempt bonds as the asset. The qualified organization is named as the irrevocable residual beneficiary of the trust. The investor receives an annuity equal to the bond interest income from the charitable remainder trust for life. Upon the death of the investor, the bonds are returned to the organization, which can then extinguish the liability on its financial statements. The investor in the tax-exempt bonds is able to deduct from his individual income tax return, an amount under applicable tax laws for the contribution of the tax-exempt bonds to the charitable remainder trust. The investor establishes an irrevocable life insurance trust with a gift of the tax saving resulting from the income tax deduction, and names his heirs or others as beneficiaries. The trustee purchases a life insurance policy, in at least an amount equal to the purchase price of the tax exempt bonds, with the tax savings resulting from the tax deduction and places the asset in the life insurance trust to replace the amount of wealth contributed originally to the charitable remainder trust.

1 . A method for enabling a donor to contribute a portion of his financial assets to a qualified organization while preserving a current value of his estate, comprising the steps of:
 purchasing a tax-exempt bond offering from the qualified organization;   establishing a charitable remainder trust with the tax-exempt bond contributed as assets;   specifying the qualified organization as an irrevocable residual beneficiary of the charitable remainder trust;   deducting from a current taxable income an amount allowed under applicable tax laws for the contribution of the tax-exempt bond to the charitable remainder trust;   establishing an irrevocable life insurance trust with a gift of tax savings resulting from the deduction of the allowed amount; and   purchasing a life insurance policy with the tax savings gift, at least equal in amount to the purchase price of the tax-exempt bond, and with the life insurance policy being held as an asset in the irrevocable life insurance trust.   
     
     
         2 . The method of  claim 1 , further comprising the step of designating the donor's heirs as beneficiaries of the irrevocable life insurance trust. 
     
     
         3 . The method of  claim 1 , further comprising the step of designating the qualified organization as a beneficiary of the irrevocable life insurance trust. 
     
     
         4 . The method of  claim 1 , further comprising the step of receiving an annuity amount based on a face value and a selected interest rate mirroring that of the tax-exempt bonds contributed to the charitable remainder trust at least on an annual basis. 
     
     
         5 . The method of  claim 4 , wherein the step of receiving the annuity amount begins in the first year of the charitable remainder trust and continues for the life of at least one named individual. 
     
     
         6 . A method for enabling a qualified organization to raise an amount of capital by transaction with a donor carrying out the method of  claim 1 , wherein the qualified organization issues the tax-exempt bond to the donor, and further comprising payment of an annuity amount based on a face value and interest rate of the tax-exempt bond to the charitable remainder trust at least annually for distribution to the donor, wherein payment of the annuity amount begins in the first year of the charitable remainder trust and continues for a period not to exceed 20 years. 
     
     
         7 . The method of  claim 1 , wherein the charitable remainder trust is created as a charitable remainder annuity trust. 
     
     
         8 . The method of  claim 1 , wherein the charitable remainder trust is created as a charitable remainder unitrust. 
     
     
         9 . The method of  claim 1 , wherein the qualified organization includes any one of a state government unit, a municipal government unit, and a tax-exempt organization as defined in Internal Revenue Code. 
     
     
         10 . The method of  claim 1 , wherein the step of establishing a charitable remainder trust is performed after the purchase of the tax-exempt bond offering. 
     
     
         11 . The method of  claim 1 , further comprising the step of executing a letter-of-intent to establish a charitable remainder trust before purchase of the tax-exempt bond.