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From the 12/19 edition of THE GAZETTE WITH PERMISSION TO POST, PAUL STEINBERG'S LETTER
TO THE EDITOR:
The discussion about
the million-dollar trust proposed as part of the Gouveia property deal is
Proponents of the Gouveia acquisition say that the donor is only getting the
"income" of the trust, which implies that the corpus will not be
touched. This is not necessarily true.
The common way in which such trusts are set up is that the donor takes assets
(normally stocks) which have appreciated greatly in value. If the donor were to
sell the assets, there would be a big capital gains tax bite. By putting the
assets in the trust, the donor gets a tax deduction for the appreciated
The donor then gets periodic distributions from the trust based on the
appreciated (and non-taxed) value of the assets placed into the trust.
As a threshold matter, it should be remembered that the Trustees have broad
discretion in which money is allocated to principal and which is allocated to
Even if the trust does not have any real "income" in the layman's
sense of the word, the donor will still be able to take a distribution, which
must necessarily come out of the corpus.
Under most state law and under federal Treasury Department regulations, the
Trustees may distribute 5 percent per annum from the corpus (more in certain
circumstances). The amount that must ultimately be given to the remainder
beneficiary (in this instance, the Village of Croton) can be as little as 10%
of the value of the original amount.
All of this assumes that the principal does not suffer a reduction due to loss
in the value of the underlying assets.
There was discussion at the Village meeting which assumed a 6 percent rate of
income. In the current market, an investment strategy designed to produce such
a stream of real income (as opposed to capital gains) would be very aggressive.
Since return tends to be aligned with risk, such an aggressive strategy would
risk loss (whether immediately recognized or not) to the trust corpus.
This is not to say that such a Trust is a bad idea for most charitable
(remainder) beneficiaries, for whom any remaining corpus is pure gravy.
But in the case of the Gouveia property, the Mayor is claiming that the corpus
will be sufficient to pay for the upkeep of the property at whatever date in
the future the Village gets the income from the Gouveia Trust.
There is simply no basis for such an assertion, and if the income from the
Trust is to be the source of funds for upkeep of the Gouveia "gift"
at some point in the future, the Village trustees need to be more transparent
as to the governance of the Trust.
The taxpayers of Croton deserve to know whether this "gift" is
destined to become a money pit, and that is almost entirely dependent on
whether the Trust will be sufficient to pay the operating costs on the
property. It is bad enough that the taxpayers will have to ante up $50k per
year to cover the property taxes which will not be paid.
There is no doubt that Ms. Gouveia has some very sophisticated legal and tax
counsel. Whether the taxpayers of Croton are being as well-served is an open
ALSO YOU MAY HAVE AN INTEREST IN WALTER PLOTCH'S RECENT GAZETTE LETTER AS WELL; http://forum.ncnlocal.com/bb/viewtopic.php?t=7451