The Charitable Remainder Unitrust

When they were doing their estate planning in the early 1980s, the late Lawrence and Elisabeth Damon had a couple of key goals. They wanted to make it financially possible for their three grown sons to own and maintain Tide River, a beloved vacation home on Cape Cod where the family had spent many happy summers, and they wanted to leave a charitable legacy.

So it was fortuitous that their son John was a charitable and estate planner, who advised them to create a Net-Income Charitable Remainder Unitrust. This is a flexible giving vehicle that allows people to obtain an immediate income-tax deduction for assets gifted to the trust while also receiving a tax-favored income stream for themselves or their family members for life or a fixed number of years, with the remainder to be distributed to a favorite charity or charities.

Years before he retired, John L. Damon, principal of Financial Compass Charitable Advisors in Barnstable, helped his parents deed Tide River to their sons and later to put their appreciated Chestnut Hill properties into the new charitable remainder trust. The trust could then sell the house and adjacent lot without paying an upfront capital gains tax and deposit the proceeds into the trust’s investment fund.

As beneficiaries, the Damons began to receive the partially tax-sheltered net investment income generated by the trust’s portfolio, which they then transferred to their sons through annual tax-free cash gifts meant to maintain Tide River and pay for premiums on a life-insurance policy that would pay out after both parents had passed away. The eventual insurance payout would be entirely tax free for the sons, and would ensure that they would be able to continue to maintain and use the summer home as before.

“The Damons used estate-planning strategies that many families with appreciated assets could benefit from,” notes Mary Moran, the Boston Foundation’s Director of Estate and Gift Planning.

Lawrence Damon died in 2001, and his wife passed away a decade later, leaving the “remainder” of the trust’s assets to a Donor Advised Fund at the Boston Foundation to be called the Lawrence B. and Elisabeth T. Damon Charitable Fund.

Why the Boston Foundation?  “I was a strong believer in the community foundation movement,” John Damon says, noting that his parents likened the Boston Foundation to “a flow-through ‘charity of charities’” willing to take grant-making suggestions from surviving family members. Lawrence Damon liked the idea of charitable giving in perpetuity. “Where else do you get perpetuity except through an organization like the Boston Foundation?” his son asks.

Mr. Damon now advises the Foundation to make gifts from the fund to educational institutions his parents attended as well as a number of other causes they believed in. “My parents had been pillars of their community,” he says. “They believed very much in the concept of ‘giving back’ and were very active in the many volunteer and leadership roles they held. In all of these activities, they set an indelible example for their children and grandchildren regarding the importance of a lifetime practice of giving back to one’s community and regularly sharing one’s financial resources with worthy causes.”

He says he feels reassured by knowing that if something happens to him, the funds in the Damons’ Donor Advised Fund would become part of the Permanent Fund for Boston, the endowment through which the Boston Foundation makes its discretionary grants. “If something happens to me or a successor advisor, TBF is in an excellent position to know – and best decide – who needs the help.”