Case Studies and Articles

Socially Responsible Retirement Planning

Socially Responsible Retirement Planning

Socially Responsible Planning – A Compensation Bonus and the CRT

Dan (30) and Pamela (26) Newberg work for a hi-technology software developer on the West Coast. As a part of their compensation, they have been provided low-basis stock as a bonus for their extraordinary development skills. After an initial public offering, the $80,000 basis stock is now worth $1,000,000. The stock produces no income, but has historically appreciated annually at 10%. This young couple has expressed an interest in using an IRCĀ§664 net income with make-up charitable remainder unitrust (NIMCRUT) as a retirement planning tool to diversify their investment portfolio and reduce volatility. As IPOs tend to be erratic, they want to capitalize on the current high market value. The Newbergs have other assets and want to consider two scenarios to provide a supplemental pension plan designed to pay them $800,000 of after-tax annual income starting at age 65. For ease of investment comparisons and consistency, a well-structured tax deferred variable annuity earning a moderate 9% was selected to fund the CRT and a comparably invested after-tax mutual fund the other scenario. The unique ability to control the distributable net income (DNI) inside the NIMCRUT is a major advantage. The Newbergs are active in conservation and wilderness preservation groups and want to support environmental and educational programs. By controlling their social capital, they create a sense of economic citizenship benefiting causes they feel are inadequately supported by the federal government. Under the recently enacted 1997 Taxpayer Relief Act (July 28, 1997), this scenario will no longer work as originally planned. Consult your tax advisors and see the chart of Unitrust Remainder Calculations to review the opportunities.

The Facts

Annual adjusted gross income$125,000, which meets their current lifestyle needs
Income tax bracket36%
Capital gains bracket28%
Investment options9% D.A. inside CRT and 9% mutual fund for non-charitable options



The charitable scenario provides for comparable net income of $18.4 million for retirement over the Newberg’s joint life expectancies, and simultaneously produces $61.2 million to support the charities that mean so much to this childless couple.