That is exactly what happened at The University of Alabama. Give & Take talked with Phillip Adcock, assistant vice president for development at UA, to find out more about this unique gift and the lessons learned from working with a donor who wanted to give such an unusual asset.
The Gift: More than $1 million through a charitable remainder unitrust funded with a 1950 Ferrari, which will provide an income to the donor and his wife for life and, upon termination, the remaining trust assets will be used to establish a scholarship in the donor’s name.
The Donor: Darrell Westfaul, a Mobile native and University of Alabama graduate, Class of 1967, who bought the rare Italian sports car for $1,500 while he was a student at the University.
How the gift came to be
According to Adcock, in 2005, Westfaul visited the development office to discuss a gift similar to one he had read about in a car enthusiast magazine. “He came in with the article that explained how a donor had made a gift of a rare Aston Martin to Caltech [California Institute of Technology] through a trust arrangement,” Adcock recalled. “He asked ‘Can the University do something like this?’ and I said ‘Yes, we can, with the right vehicle.’”
During that initial meeting, Westfaul asked many questions. “He wanted to know if the University would serve as trustee, how our trusts were managed, who acted on our behalf, and what the fees associated with such a trust would be,” Adcock said. “He was very thorough.”
Such thoroughness is evidently a trait Westfaul has possessed for some time. “Mr. Westfaul is very astute. He knew this car’s racing history and potential for appreciating in value when he bought it for $1,500 as a college student in 1967,” Adcock said. “He even worked diligently to locate and pay for the car’s original engine, which was owned by a collector in Birmingham. He kept the engine and the car for 40 years, moving them from garage to garage, because he knew the future value of the car depended on having all its original parts.”
Creating the trust
After several conversations and meetings between Westfaul, his advisors, and the University’s office of counsel, the charitable remainder unitrust arrangement was developed. “Basically, the gift was in the form of what is known as a ‘flip unitrust’ in which Mr. Westfaul served as trustee until the car sold,” Adcock said. Under the terms of a flip trust, only the income earned by the trust is paid to a donor until the occurrence of what is known as a “triggering event.” “The triggering event in the case of this trust was the sale of the car, which Mr. Westfaul arranged with a collector in Arizona. After the car sold, the University became the trustee.”
Adcock noted that, due to related use rules for a gift of tangible personal property, Westfaul’s income tax deduction for this gift was based on his cost basis—$1,500—as opposed to the car’s fair market value. “The real tax benefit came in the avoidance of capital gains tax, 28% in the case of tangible personal property such as an automobile or art. Since the car sold for more than $1 million, that is a significant capital gains tax savings.
“In addition, Mr. Westfaul and his wife will benefit from the income supplement for both of their lives,” Adcock explained. “This car was an asset he had owned for many years that was not producing any income. This gift allowed him to accomplish his goal of making a substantial, tax-efficient gift to UA while at the same time retaining an income during his retirement years.”
For Adcock, working on such an unusual and special gift reinforced his beliefs in some basic tenets of gift planning. “We hadn’t worked with Mr. Westfaul before,” Adcock noted. “So when he told us in our initial meeting that he wanted to fund a unitrust with a used car, I was a bit apprehensive. But I was patient and just listened. I didn’t jump to any conclusions. I think that is important in all conversations with donors. Be polite, listen carefully, let them know you want to work with them in any way you can, and follow-up with them promptly.”
Adcock also pointed out that, even though Westfaul knew his decision would enhance the lives of students at his alma mater, deciding to give away the Ferrari was not easy. Adcock explained, “This was the car he drove in college. It still had the 1966 University student parking decal on the window! So giving away this car, letting something go that you have held on to and enjoyed, was incredibly difficult and something he had to think very carefully about. “Bob Sharpe, Sr., used to teach in his seminars that most of us have an emotional attachment to our assets,” Adcock said. “That was clearly the case with Mr. Westfaul and his Ferrari. He even said the car had been like a member of his family over the years. But he had a love of and a commitment to the University, and he wanted to provide scholarships for students from the Mobile high school he attended. This arrangement was a wonderful way for him to make an extraordinary gift that will support student scholarships while at the same time enhancing financial security for him and his wife during retirement.”