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Monday August 31, 2015

Case of the Week

Lucky Lucy Lindstrom's "Northern Long Shot" Charity


Lucky Lucy Lindstrom finished college and headed west. She started as a financial analyst with a large company in Seattle. After just four years, she became a Registered Investment Advisor (RIA) and began advising clients. Lucky Lucy also managed her own investments. With her keen insight into financial markets, Lucy soon began to move from traditional stocks and bonds into futures and commodities markets. Lucky Lucy was so successful in these markets that she now manages only her mega-dollar personal portfolio.

Somewhat late in life, Lucky Lucy discovered the wonderful world of philanthropy. She volunteered at her favorite charity and learned that giving someone in need a helping hand is even more gratifying than making another million in the futures market.

Lucy had invested $1,000,000 in stock in a Canadian oil “wildcatter” with the name Northern Long Shot, Inc. This company has been drilling new exploratory wells in the far north. Recently, the stock rose from the $1 per share that she paid to over $5 per share. After this success, Northern Long Shot decided to “spin off” a smaller company with a portion of the successful wells. Lucy exchanged her $5 million in stock for 60% of the stock in Northern Long Shot, Inc. After the exchange, Lucy decided to give the Northern Long Shot stock to a private charitable foundation to help those in need.

Lucy discussed several options with her attorney. She asked her attorney about the ability of her private foundation to keep the Northern Long Shot, Inc. stock. Her attorney noted that private foundations are subject to various rules on self-dealing, minimum distributions and excess business holdings.


Lucy said, “Wow! There are a lot of rules for private foundations. So can my private foundation continue to own the Northern Long Shot stock?”


Her attorney explained that under the excess business holdings rules, Lucy’s private foundation is permitted to hold no more than 20% of a corporation's stock or business interest. The limit is 35% where a third person has effective control of the enterprise. For these provisions to apply, the private foundation must hold more than 2% of the business stock or interest. Sec. 4943(c)(2).

After the gift of Lucy’s stock, her private foundation owns 60% of Northern Long Shot, Inc. and the excess business holdings rules will apply. Because Lucy’s private foundation acquired the stock by gift, there is a five year grace period to dispose of the stock and comply with the excess business holdings rules. Sec. 4943(c)(6).

Lucy’s private foundation held the stock for three years. At the end of that time, the other shareholders decided to purchase the Northern Long Shot, Inc stock for $7 million. Lucy’s foundation then invested these funds and each year makes generous gifts to those in need.

Published August 28, 2015
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Previous Articles

Lucky Lucy Lindstrom's "Hurricane Grants" Charity

Lucky Lucy Lindstrom's "No Self-Dealing" Charity

Lucky Lucy Lindstrom's Long Shot Unitrust

Lucky Lucy Lindstrom's "Wheeler-Dealer Charity LLC"

Lucky Lucy Lindstrom's "Personal Loan" Charity


Beneficiary Designations Language

All beneficiary designations should be made to the Board of Regents of The University of Texas System, EIN 30-0710145, for the use and benefit of The University of Texas Health Science Center at San Antonio. This gift shall be used for the further benefit of [College, School, Department] and shall be used to _________________."

View and download:
   Sample Bequest language
   Sample Beneficiary language
   Estate Intention Letter

Charitable Gift Annuity
Single Rates from the American Council of Gift Annuities

Age Rate
60 4.40%
65 4.70%
68 4.90%
70 5.10%
72 5.40%
74 5.70%
76 6%
78 6.40%
80 6.80%
82 7.20%
84 7.60%
86 8%
88 8.40%
90 9%

CGA's are also available for two lives and can be deferred

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