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Advanced Charitable Brainteasers: Common Problems and Uncommon Solutions

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  • 1. Advanced Charitable Brainteasers: Common Problems and Uncommon Solutions November 1, 2011 Bryan Clontz, CFP ® President Charitable Solutions, LLC bryan@charitablesolutionsllc.com (404) 375-5496 If you hear something today that you would like to share with your colleagues, clients and friends, please live-tweet from today’s event using #clontz . All Materials Copyright 2010, Charitable Solutions, LLC Brought to you by:
  • 2. Agenda
    • EIGHT ADVANCED CHARITABLE CASE STUDIES
    • Life-Changing Baseball Coach: Commodities for College
    • Artwork to Ireland: Thankfully People Buy Modern Art
    • Corporate Real Estate Give-Back: Employees Retrained
    • Doctors’ With a Good Investment: Believe It or Not!
    • Religious Conversion: Stabilizing a Family Foundation
    • Asset Compression and Anonymity: Lesson Learned
    • Pledge Fulfilled With Leveraged Dollars: Saving Face
    • S-Corporations and Roach Motels: Tax Arbitrage is a Beautiful Thing
    #clontz
  • 3. Charitable Brainteaser #1 – Situation
    • LIFE-CHANGING BASEBALL COACH: COMMODITIES FOR COLLEGE
    • Client ’ s son barely graduated high school
    • Went to small Midwestern university on baseball scholarship
    • Immediately, coach positively changed son ’ s life
    • Son is 27, graduated from Princeton and VP in father ’ s Commodity Trading Business
    • Father wants to create a Scholarship Fund to honor coach
    • Doesn ’ t want Fund if coach leaves or retires
    • Father ’ s assets are limited except for three seats on the NYMEX
    Source: Spectrem Group and Reality Times, June 2004 #clontz
  • 4. Charitable Brainteaser #1 – Solution NYMEX Seat Made Grants to Coach’s Current School for Baseball Scholarships Family Donor Advised Fund: Son Named Successor Advisor Father Wants to Thank Baseball Coach #clontz
  • 5. Charitable Brainteaser #2 – Situation
    • ARTWORK TO IRELAND: THANKFULLY PEOPLE BUY MODERN ART
    • New York client owns multiple pieces of inherited art currently in storage
    • Originally intended to bequeath art to local church
    • Now he wants to make a $500,000 donation to an Irish charity ’ s endowment with no US-affiliate
    • Ideally, he would like to keep the money with his investment advisor for the next 10 years
    #clontz
  • 6. Charitable Brainteaser #2 – Solution Donor Advised Fund Sells Art at Sotheby’s for $500,000 Money Manager Named Investment Agent Two Paintings 5% Distributed Annually to US-Based Donor Advised Fund Specializing in International Grants Donor Seeks to Support Irish Charity #clontz
  • 7. Charitable Brainteaser #3 – Situation
    • CORPORATE REAL ESTATE GIVE-BACK: EMPLOYEES RETRAINED
    • Fortune 500 corporation shut down domestic textile mill production and outsourced jobs
    • Goal was to create a foundation to provide job-retraining and social service grants to effected employees
    • Critically important to maximize tax savings and minimize administrative burden
    • Would consider funding with cash or shuttered mill property
    #clontz
  • 8. Charitable Brainteaser #3 – Solution Corporation Donor Advised Fund VP/Community Affairs Named Fund Advisor Mill Real Estate Grants to Multiple Southeastern Rural Communities for Job Retraining and Social Services Public Corporations Wants to Support Displaced Employees #clontz
  • 9. Charitable Brainteaser #4 – Situation
    • DOCTORS WITH A GOOD INVESTMENT: BELIEVE IT OR NOT!
    • Four doctors owned their medical building with virtually zero cost-basis
    • A regional REIT offered to purchase it every year
    • Doctors wanted to retire and sell practice to six junior doctors
    • Junior doctors wanted long-term lease
    • Each doctor was charitably-inclined but wanted to maximize tax savings and receive a life income
    • Two were particularly concerned about disinheriting children/grandchildren with donations
    #clontz
  • 10. Charitable Brainteaser #4 – Solution $1.2 million/20% Interest Four Donor Advised Funds Children Successor Advisors Multiple Grants to Multiple Charities $1.2 million/20% Interest $1 Million Insurance Trust #1 $300K Insurance Trust #2 Four 7 Percent Charitable Remainder Trusts for Life Four Doctors Owned $6.0 Million Medical Building #clontz
  • 11. Charitable Brainteaser #5 – Situation
    • RELIGIOUS CONVERSION:STABILIZING A FAMILY FOUNDATION
    • 5 years ago, grandfather wanted a 100% charitable estate tax deduction without irrevocably giving the assets to charity
    • Now, two children and four grandchildren are on foundation ’ s board – one grandchild married outside of faith and upset her brother
    • She feels ostracized and can ’ t make grants to new church
    • Family foundation had not met 5% payout requirement and also wanted to grant to an environmental charity but application expressly excluded environmental groups
    #clontz
  • 12. Charitable Brainteaser #5 – Solution Donor Advised Fund for Daughter Daughter Made Grants on Her Terms and Family Foundation Flowed Anonymous Grants Through Fund 26-Year Charitable Lead Annuity Trust/ Family Foundation 2 Parents/4 Children #clontz
  • 13. Charitable Brainteaser #6 – Situation
    • ASSET COMPRESSION AND ANONYMITY: LESSON LEARNED
    • An overly optimistic client was named capital campaign chair for church – promised completion in 24 months
    • As a warehouse developer, he held a number of triple-net lease properties which he wanted to tax-effectively transfer to his children
    • 23.9 months into the campaign, he called to say the campaign was $300,000 short and he needed some solutions
    • Also, his 80-year-old mother planned to contribute $500,000 to the church campaign for a charitable gift annuity (income for life) but was concerned about default risk
    #clontz
  • 14. Charitable Brainteaser #6 – Solution Donor Advised Fund for Anonymous Campaign Gift Mother’s 8% Charitable Gift Annuity Church Foundation Single Premium Immediate Annuity 13-Year Zero-Out Charitable Lead Annuity Trust Funded With Family Limited Partnership/ Triple-Net-Lease Property #clontz
  • 15. Charitable Brainteaser #7 – Situation
    • PLEDGE FULFILLED WITH LEVERAGED DOLLARS: SAVING FACE
    • 65 entrepreneur pledged $10 million to name a business school in 1999
    • Company collapsed in 2006 and he had $7 million remaining on the pledge
    • School said either $7 million now or $15 million in an irrevocable estate gift
    • Client had an $4 million IRA, $13 million stock portfolio and a $5 million life insurance policy ($2 million in cash) originally purchased in 1985 as a cross-purchase business buy-sell (underperforming) and about $300K in cash
    • Client does not want pledge fulfillment to negatively impact three children
    #clontz
  • 16. Charitable Brainteaser #7 – Solution Donates Policy to University Funds with IRA Contribution and $2 million Appreciated Stock Donor 1035-Exchanges Old Policy For Better Performing $15 Million Death Benefit/ $4 Million Cash Value Donor Needs to Complete School Pledge $2 Million Life Insurance Trust For Three Children $100K from IRA – Tax-Free #clontz
  • 17. Charitable Brainteaser #8 – Situation
    • S-CORPORATIONS AND ROACH MOTELS: TAX ARBITRAGE IS A BEAUTIFUL THING
    • Investment advisor ’ s firm is a S-Corp and he wants to sell $500,000 to new partner
    • State income tax rate is 8%
    • Investment advisor is charitably-inclined
    • Advisor wants to use the S-Corp stock if possible to make a contribution to consumer credit counseling
    • S-Corp has zero cost-basis and all gain is categorized as unrelated business taxable income to the charity (UBTI)
    #clontz
  • 18. Charitable Brainteaser #8 – Solution Public Charitable Trust With a Donor Advised Fund Sells to New Partner/15% Gains Tax Reduced by 50% for Deduction Charity Receives Net 94% of Gift as Grant Donor Receives a 100% FMV Deduction Vs. Sale and Gift Netting 77% to Donor and Charity Advisor Contributes S-Corp to Trust-Form Public Charity in Florida (Income Tax-Free State) #clontz
  • 19.
    • The following slides were developed by Lee Hoffman, President/CEO, Planned Giving Design Center from data derived from "The 2010 Study of High Net Worth Philanthropy" Sponsored by Bank of America and researched and written by The Center on Philanthropy at Indiana University
  • 20.  
  • 21. #clontz
  • 22. Thank you for Coming! Bryan Clontz, CFP ® President Charitable Solutions, LLC bryan@charitablesolutionsllc.com (404) 375-5496 Peter A. Dunn President & CEO Central New York Community Foundation [email_address] (315) 422-9538