Creative Charitable Planning with Non-Cash Gifts


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Presented by Bryan Clontz
October 19, 2010
Central New York Community Foundation

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Creative Charitable Planning with Non-Cash Gifts

  1. 1. Creative Charitable Planning with Non-Cash Assets October 19, 2010 Bryan Clontz, CFP ® President Charitable Solutions, LLC (404) 375-5496 All Materials Copyright 2010, Charitable Solutions, LLC Brought to you by:
  2. 2. Agenda <ul><li>Non-Cash Asset Market Overview </li></ul><ul><li>Non-Cash Asset Types </li></ul><ul><li>A 5-Minute Non-Cash Tax Seminar </li></ul><ul><li>Legislative Update </li></ul><ul><li>Reasons Non-Cash Assets are Declined </li></ul><ul><li>Top Ten Non-Cash Questions </li></ul><ul><li>Three Case Studies </li></ul>
  3. 3. Non-Cash Asset Market Overview <ul><li>More than half of affluent investors’ assets are held in non-cash assets; cash only represents 3-5% </li></ul><ul><li>Aggregate stock market value is approximately $13 trillion; non-cash market estimates are $40-60 trillion </li></ul><ul><li>Of the $300 billion in donations last year, non-cash assets are estimated to be 3% or less </li></ul>Source: Spectrem Group and Reality Times, June 2004
  4. 4. Non-Cash Asset Types <ul><li>Real Estate </li></ul><ul><ul><li>Residential vs. Commercial, Encumbered vs. Unencumbered, Partial vs. Entire Interests </li></ul></ul><ul><li>Privately-Held Interests </li></ul><ul><ul><li>C-Corp and S-Corp Stock, Limited Partnerships or LLCs </li></ul></ul><ul><li>Restricted Stock </li></ul><ul><li>Tangible Personal Property – Art/Collectibles (New PPA Rules) </li></ul><ul><li>Weird Stuff </li></ul><ul><ul><li>Quarterhorse, Seat on New York Mercantile Exchange, Gold Bullion, Euro-Denominated Bond, Beach House in Mexican Land Trust, Paris Condo, UPREIT Partnership Units, Patents, Timber Deeds, Clay Mineral Rights, Book Royalties, Oil & Gas Interests, Red Wine, Hedge Fund Carried Interest, NFL Team, and finally, Dead Animals </li></ul></ul>
  5. 5. A 5-Minute Non-Cash Seminar <ul><li>Cash BAD – Everything else GOOD ! </li></ul><ul><li>Capital gain property receives a fair market value deduction AND an elimination of capital gains tax if donated to a public charity </li></ul><ul><li>If donated to a private foundation, donations of non-cash assets during life only receive an adjusted cost basis deduction </li></ul><ul><li>Public charities do not have a 5% payout requirement – private foundations do </li></ul><ul><li>Donor advised funds are especially attractive for multiple grants </li></ul>
  6. 6. Appraisal Considerations <ul><li>Appraisal may occur 60 days prior to gift at the earliest, and the latest being the time the donor files the tax return – Donor completes Form 8283 and Charity completes Form 8282 </li></ul><ul><li>Pension Protection Act Key Changes </li></ul><ul><ul><li>Extended Form 8282 to 3 years, Tightened Definition of Substantial and Gross Valuation Misstatement, Increased Appraisal Penalties and Definition of a Qualified Appraiser </li></ul></ul><ul><ul><li>Tightened Deductions Related to Partial Interests in Tangible Personal Property </li></ul></ul>
  7. 7. 80% Of All Non-Cash Gifts Rejected <ul><li>Tax and Legal Complexity (UBTI, Bargain Sale, Palmer/Blake/Ferguson Pre-arranged Sale Issues, Agreement Complexity, Self-Dealing, Excess Benefit, Private Inurement) </li></ul><ul><li>Environmental Issues (Due Diligence, Remediation, Disclosures, Deep Pockets) </li></ul><ul><li>Management Issues (Holding Period, Insurance Changes, Contract Changes, Appropriate Filings and Paperwork) </li></ul><ul><li>Charity’s Internal Process (Timeliness, Thoroughness, Risk Tolerance, Weak Gift Acceptance Policies/Procedures) </li></ul><ul><li>Perceived Risk/Reward Ratio </li></ul>
  8. 8. Top Ten Non-Cash Questions <ul><li>Asset Description/Expected Value </li></ul><ul><li>Asset Ownership </li></ul><ul><li>Partial or Entire Interest </li></ul><ul><li>Debt or Other Encumbrances </li></ul><ul><li>Outright, Life-Income or Testamentary </li></ul><ul><li>Capital or Ordinary Asset </li></ul><ul><li>Tax Implications </li></ul><ul><li>Potential Buyers and Offer Status </li></ul><ul><li>Holding Period and Management Issues </li></ul><ul><li>Transfer Timing </li></ul>
  9. 9. Case Study #1 Commercial Real Estate Contribution For illustrative purposes only. $1.2 million/20% Interest Community Foundation Four Donor- Advised Funds Four Doctors Owned $6.0 Million Medical Building Building Purchased by Publicly-Traded REIT Multiple Grants To Multiple Charities $1.2 million/20% Interest Four 7 Percent Charitable Remainder Trusts For Life
  10. 10. Case Study #2: Closely-Held Business For illustrative purposes only. Central New York Community Foundation Family Business C-Corporation Partial Interest Corporate Redemption <ul><li>Donor Contributes Stock – Receives Full Deduction </li></ul><ul><li>Company Buys Stock Back </li></ul><ul><li>Minority Interest Holders Increase Percentage Ownership </li></ul><ul><li>With No Gift Tax </li></ul><ul><li>4. Donor Creates Named Research Fund </li></ul>
  11. 11. Case Study #3: S-Corp UBIT Solution/ Dechomai Asset Trust Donation Flow Dechomai Asset Trust: Nevada Public Charity Step 3 – GRANT TO PUBLIC CHARITY Step 2 - ASSET IS SOLD Step 1– CALIFORNIA DONOR CONTRIBUTES UBIT ASSETS Deduction: $1M of S-corp stock with $200K adjusted basis UBIT at trust rates ($800K @ 15%) = $120K in tax Trust receives a 50% of AGI deduction to reduce tax to $60K plus $25,000 charitable fee or $85K net with $915K to charity; If donor sold asset, gift/deduction would have been $800K (25% tax federal and state tax)
  12. 12. Case Study #4: CLT w/Limited Partnership Interests For illustrative purposes only. Charitable Lead Annuity Trust Commercial Real Estate Donated to FLP FLP Interest w/35% Discount Central New York Community Foundation 30 Year Lease of $1 Million @ 8% $650K @ $80K/Income = 12.3% Payout
  13. 13. Thank you for Coming! Bryan Clontz, CFP ® President Charitable Solutions, LLC (404) 375-5496 Peter A. Dunn President & CEO Central New York Community Foundation [email_address] (315) 422-9538