>By Shankar P.
7/7/2008
The largest single donation to a hospital in New Jersey won’t benefit just sick people, but also the donor’s estate because of his careful tax planning.
The strategy of real estate developer David F. Bolger, who two weeks ago pledged $30 million to Valley Hospital in Ridgewood, can be applied to smaller donors, too.
Bolger, 75, used a tax-exempt estate planning tool called a charitable lead annuity trust, in which The Bolger Foundation had accumulated cash and stock totaling about $30 million, according to Thomas Wells, Bolger’s attorney and a senior partner in the law firm of Wells, Jaworski & Liebman LLP of Paramus.
In a smart move, the stock Bolger deposited in the trust are shares of an unnamed bank that he believes are undervalued and will appreciate significantly over time, says Wells. In fact, that stock accounts for the majority of what Bolger has put in the trust, while the rest is cash, according to the attorney.
Wells says many donors tend to place in charitable lead annuity trusts securities bought at a low price that have since appreciated significantly. “In this case, we believe [the bank stock in the trust] is undervalued; it is at a historic low,” he adds.
Wells explains how the trust could help save on inheritance taxes for Bolger’s estate. He says if the share price of the bank stock appreciates enough to increase the trust’s size beyond the $30 million set aside for Valley Hospital, the surplus would pass tax-free to Bolger’s estate. If the stock was held outside the trust, such appreciation would be taxed by as much as 50 percent under normal circumstances, he adds.
Wells is the trustee in charge of ensuring Bolger’s pledged payments reach Valley Hospital at the end of each calendar year. Wells says the trust would pay out accumulated cash initially and then sell the bank stock as necessary to pay out $6 million annually over five years.
Robert Wahlers, president of the New Jersey chapter of the Association of Fundraising Professionals, agrees that Bolger’s use of the trust is “a wonderful tool” for estate tax planning.
“If he makes the gift and the remainder of the money doesn’t come back to him, he could take the appreciation [in the bank stock] and pass it on to his children,” says Wahlers, also senior director of major and planned gifts at the American Cancer Society in East Brunswick.
Wahlers notes charitable lead annuity trusts can also work well for smaller donors, those who give $1 million or more.
But “it takes a sophisticated donor who has a trusted adviser” to consider using such a trust, adds Wahlers. “It’s often discussed and it’s the type of thing where all the stars need to align,” he says. “It’s one of the lesser-used trusts because it takes longer to understand.”
Charitable lead annuity trusts could potentially get more popular with those approaching retirement these days, says Wahlers. “This is the perfect economy for such trusts,” he says. Retirees could gain more from the tax benefits such trusts offer compared to other investment options given the current, low interest rates, Wahlers explains.
Bolger, the son of Dutch immigrants John and Coby Bolger, says he made his way through modest beginnings as a steel worker to eventually build a real estate fortune. His firm, Ridgewood-based Bolger & Co. Inc., owns about 100 industrial properties nationwide including about 15 in New Jersey. Bolger declined to estimate his real estate portfolio’s current market value.
Bolger has been a liberal donor over the years, and says he prefers to support causes primarily in and around Ridgewood, health care institutions and preservation efforts. Last weekend, the “Barn,” a community center in neighboring Midland Park, reopened after a $700,000 renovation financed by The Bolger Foundation, according to Bolger’s youngest son, James Theodore “JT” Bolger.
Causes like fighting AIDS or the December 2004 tsunami that struck the Asia Pacific region “are too big for me,” says the senior Bolger. “I like to contribute to causes that have an impact,” he adds.
His son adds about his father, “He picks causes with a start and an end.” Also, some donations are not outright gifts but come “with strings attached,” according to the son. “He challenges the [beneficiary] organization so that other people get on board and donate as well. Part of the thrill of donating is to see the process your gift starts,” says JT Bolger, 37.
The son says he and his siblings John Bolger, 42, and Betsy Mott, 54, do not covet the riches their father donates. “It’s his money and his right to donate it,” JT Bolger says. “There are certain places you don’t pry into, and one of them is his estate planning.”
JT Bolger says his father instilled in his children the value of earning their own keep. The son recalls having to do chores around the house as a child if he wanted a new
toy, and says he ran his own landscaping business for 15 years before joining the family business.
The father, of course, isn’t one to overlook his children as he writes his donation checks. The way he designed his Valley Hospital pledge is just one example of that.
E-mail to shankar_p@njbiz.com