Method of capital creation for tax-exempt organizations

Abstract

A capital creation process for a qualified (i.e., tax-exempt) organization to raise funds for capital improvements, subsequently eliminating the obligation to ever repay the debt. The tax-exempt bonds are offered to selected investors in a pool that meets certain parameters that may include age, wealth and affiliation with the tax-exempt organization issuing the bonds. The investor establishes an individual charitable remainder trust with the purchased tax-exempt bonds as the asset. The qualified organization is named as the irrevocable residual beneficiary of the trust. The investor receives an annuity equal to the bond interest income from the charitable remainder trust for life. Upon the death of the investor, the bonds are returned to the organization, which can then extinguish the liability on its financial statements. The investor in the tax-exempt bonds is able to deduct from his individual income tax return, an amount under applicable tax laws for the contribution of the tax-exempt bonds to the charitable remainder trust. The investor establishes an irrevocable life insurance trust with a gift of the tax saving resulting from the income tax deduction, and names his heirs or others as beneficiaries. The trustee purchases a life insurance policy, in at least an amount equal to the purchase price of the tax exempt bonds, with the tax savings resulting from the tax deduction and places the asset in the life insurance trust to replace the amount of wealth contributed originally to the charitable remainder trust.

Description

CROSS REFERENCE TO RELATED APPLICATION[0001]This application is a divisional application and claims priority under the provisions of 35 U.S.C. §120 of U.S. patent application Ser. No. 10 / 184,780, filed Jun. 27, 2002 in the name of Leigh S. Fultz. The disclosure of said application is hereby incorporated herein in its entirety, for all purposes.BACKGROUND OF THE INVENTION[0002]Low cost, tax-exempt financing is available to all state and local governments (i.e., cities, counties, townships, school districts, special districts, and authorities) as well as for many tax-exempt 501(c)(3) institutions such as hospitals, universities, colleges and volunteer fire departments. Tax-exempt financing through the sale of tax-exempt bonds offers practical financial alternatives to paying cash for capital expenditures by state and local government units and tax-exempt institutions. Simply state, a bond is a debt instrument that is issued for a period of more than one year, with the purpose of raisi...

AI Technical Summary

Benefits of technology

[0021]1. allows the issuing institution the opportunity to utilize debt financing to a far greater degree than historically possible, as much as 2 times as much debt capacity with no increase in cost;

[0023]3. improves the financial ratios and balance sheets of institutional users;

[0024]4. gives the investor lifetime tax-free income, more asset transfer potential than would otherwise be available to the investor, and the added benefit of making a substantial gift to the charitable institution involved;

[0026]6. accelerates the institution's ability to proceed with capital projects at an earlier date than might otherwise have been possible, thus realizing cost savings and use, both potentially substantial; and

Problems solved by technology

Federal tax law may impose limitations on the dollar amount that can be financed with tax-exempt debt.

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