Once upon a time… there was a young married couple named Jim and Mary Mitchell. After Jim graduated from college, he started working for a very large company. As the years passed, the very large company offered Jim the opportunity to buy stock in the company at a very good price. He and Mary made the decision that the very large company was a good investment. So, Jim bought stock in the very large company every time it was offered to him at a very good price. As time went by, three little Mitchells came to live in the Mitchell’s home. Jim and Mary were very busy making sure the three little Mitchells were fed, clothed and learned everything they needed to know to go into the world on their own.
One day the three little Mitchells started families of their own, and Jim and Mary found themselves on their own.
The years passed and before they knew it the very large company reminded Jim and Mary it was Jim’s 65th year and the very large company suggested he take the time to enjoy the good things in life. So Jim and Mary Mitchell decided to count all of the things of value they had collected over the years to see just how many of the good things in life they could enjoy.
As Jim and Mary looked at the list they were surprised to see that many of the things they had collected would still be needed. But, there, at the end of the list was the stock of the very large company. It had grown and grown over the years, and was now worth $1,000,000. This seemed too good to be true since Jim and Mary had only paid the very large company $100,000 for the stock. So Jim and Mary made an appointment with their financial advisor to see how they might make the stock in the very large company produce as many of the good things in life as possible.
The day of the appointment came and Jim and Mary were very excited. The financial advisor looked at the stock from the very large company and asked Jim and Mary how much they had paid for it. “One hundred thousand” Jim replied proudly. A concerned look came over the face of the financial advisor’s face. “What’s the matter?” asked Jim. “Depending upon what you decide to do, you may not have a million dollars to enjoy the good things in life” said the financial advisor.
“Why not?” asked Jim. The advisor replied “Because you will have to pay the King for your $900,000 in good fortune.” “How much will we have to pay?” asked Mary. “I will prepare a report for you” said the advisor. “I will tell you three things: how much you must pay the King, how much you will have for yourselves to enjoy the good things in life and how much will be left for the three little Mitchells. In addition, I will prepare my report two ways. First, what will happen if you keep the stock in the very large company forever. Secondly, what will happen if you sell the stock and reinvest it to produce more of the good things in life.” And so she did.
And so it was… The advisor’s news was not good news.
If the Mitchells kept the stock of the very large company, they would not need to pay the King for their good fortune. However, they would not be able to enjoy many of the good things in life for the stock in the very large company only paid $13,000 per year after taxes. While the income from the stock eventually grew to $44,194, that was 22 years away.
If they sold the stock now, they would have to pay the King $315,000 for their $900,000 in good fortune. In addition, because of this, the $1,000,000 would be reduced to $685,000 and would only produce $35,620 after taxes each year. And what of the three little Mitchells? To leave the greatest amount possible, $1,621,592, Jim and Mary would have to keep the stock and enjoy the fewest number of the good things in life. “Surely there must be another way?” said Jim. “If you could have but one wish for yourselves and your children, what would that be?” asked the advisor. The Mitchells thought and thought. “Anything?” asked Jim and Mary in unison.
“Anything!” said the advisor.
After much thought, the Mitchells gave the advisor their answer. “If we could have one wish for ourselves it would be that we could enjoy more of the good things in life than either of these two options allow. At the same time, we wish our children would have as much as if we kept the stock in the very large company.”
“You don’t want much, do you?” replied the advisor. “In order to grant you your wish I will need to call in the Court Fairy.” And so she did.
The Fairy came… “What do you desire?” asked the Fairy. “We want more of the good things in life then either of these two options have to offer, and we want our children to have as much as they would have if we kept the stock in the very large company” said the Mitchells.
“You don’t want much do you?” said the Fairy. “OK, there is a third option. I will grant you your wish, but only upon the following conditions. First, you must promise to give away the stock of the very large company to all the people of the land. Second, you must never ask for it back.”
“This seems like a very large price to pay” said Jim. What will we get in exchange for such sacrifice and what must we do?”. The Fairy answered “For such a gift you will be bestowed with many treasures. This is my reply.”
“First, you will promise to give the stock of the very large company to all the people of the land.
It will be placed in the trust for them immediately. We will keep the trust assets in the Palace and they will be protected by the Palace Guard.”
“Second, because you have made such a promise, instead of charging you taxes, the King will give you a handsome tax deduction of $246,720, and you will save much in taxes.”
“Third, since the trust is for all the people in the land, the King has made it exempt from all taxes.
We will sell the stock in the very large company while it is in the trust and invest it wisely to pay for all the good things in life you desire. We assure you, we will invest the trust assets to create the income you desire, but we will not subject you or all the people in the land to undue risk.”
“Fourth, we will pay you eight percent ($52,000 after taxes in the first year) of all that is in the trust each year, starting immediately. Over your lifetimes, this will be approximately $446,712 more than selling the stock in the very large company and $666,252 more than keeping the stock in the very large company. This will give you more of the good things in life and allow you to replace the stock you are giving all the people in the land, for the three little Mitchells when you are gone.”
“Fifth, you must give the three little Mitchells $249,458 over the next eight years. The King will allow you to do this without any taxes. This will still provide you with $197,253 more in income than selling the stock in the very large company and $416,793 more the keeping the stock.”
“Sixth, your children must give this money to the Knight of the Round Table so he may purchase life insurance on you and Mary to benefit your children when you and Mary are gone. If you do this, when you and Mary die, the Knight of the Round Table will give the three little Mitchells an amount equal to the value of the stock in the very large company, as if you had kept it.”
“Seventh, when you and Mary die you will not owe the King any more in taxes on the stock you placed in trust or the money the Knight of the Round Table gives to your children. At that time, we will release the assets you placed in trust to all the people in the land. Your advisor has prepared a report that shows the results of your charitable hearts. If you do these things, your wishes will be granted.”
And so it came to pass…the Mitchells did these things the Fairy requested. The Mitchells left the very large company behind. They enjoyed all the good things in life which $980,893 could buy. And when they died, the three little Mitchells received $1,641,219 from the Knight of the Round Table. And all the people rejoiced, for after the trust created all this good fortune for Jim and Mary and the three little Mitchells, it was still valued at $1,000,000 and many good things were done across the land. To this day the people talk of the magic of the charitable remainder trust and the kindness and wisdom of Jim and Mary Mitchell.