Academic journal article Albany Law Review

The Other Family Tree: Leaving Your Legacy in a Private Foundation

Academic journal article Albany Law Review

The Other Family Tree: Leaving Your Legacy in a Private Foundation

Article excerpt

I. INTRODUCTION

Recent drivers may not know that there was once a time when roads did not have those painted white lines along their shoulders. Originally, the lines were only in the middle. In the early 1950s, engineer Dr. John V. N. Dorr hypothesized that when driving at night during a rain or snowstorm, impaired vision caused drivers to hug the painted lines in the middle of the road.(1) This, Dorr believed, led to numerous collisions. Dorr asserted that car accidents could be decreased if lines were painted on the edges of the roads(2) and Dorr convinced highway officials in New York's Westchester County to test his theory on a long stretch of highway with curves and gradients.(3) The results were dramatic. A follow up test in Connecticut proved the same.(4)

In order to publicize the demonstration's results, Dorr used his own private foundation, the Dorr Foundation of New York.(5) State funds that now pay for the painting of lines in the middle and on the edges of roads are attributable to Dorr and his private foundation.(6)

Private foundations play a valuable role in American society.(7) Working as a partner with government and business, private foundations are one of society's research and development arms exploring cutting-edge solutions to current problems.(8) Many foundations have expertise in specialized areas and serve as informal clearinghouses of information.(9) Other foundations have created cultural infrastructures through the funding of museums, art collections, and concert halls.(10) Foundations also have founded or developed numerous colleges and universities.(11) On a more personal level, private foundations have allowed families to undertake projects of common interest. They have also allowed the original grantors to leave behind legacies of philanthropy, through which descendants learn about their relative's character and values.(12)

The next forty years will witness the largest transfer of wealth in American history.(13) Members of the baby boomer generation are anticipating an estimated 10.4 trillion-dollar transfer from their parents, a generation which has "earned and saved more wealth than any of its predecessors."(14) With this incoming wealth, there is expected to be "a huge surge in charitable giving."(15)

This Comment focuses on the use of trusts and private foundations in estate planning. Its first purpose is to inform the reader of the basic principles that govern trusts and private foundations. The second purpose is to explain how a trust can be used in conjunction with a private foundation to maximize the benefits of charitable giving. Specifically, such benefits are maximized by constructing an arrangement of three trusts (three trust arrangement) through which contributions are made to a private foundation.(16) When this arrangement is used, the trust is allowed to deduct charitable contributions up to 100% of its adjusted gross income, a deduction higher than any other entity is allowed.(17) The third purpose of this paper is to discuss how a trust or a private foundation can be used to create "the other family tree" through which traditions, values, and a family heritage can be passed down to successive generations.

Part II of this Comment introduces this three-trust arrangement and describes the basic principles governing trusts and the benefits they offer.(18) Part III provides a similar analysis of private foundations.(19) Part IV summarizes the estate planning opportunities available through trusts and private foundations.

II. THE TRUST AND THE THREE TRUST ARRANGEMENT

A. The Three Trust Arrangement

At the outset, let it be said that this Comment is not meant as an exhaustive review of trusts and the applicable tax laws. Enough background is given so that the reader can appreciate this estate-planning tool. The basic structure is as follows: Trust B is an irrevocable complex trust that owns and operates a business, and has as its sole beneficiary, Trust A, to which it disperses income yearly at the sole discretion of the trustees. …

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