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Cobbs, Allan and Hall RiskWISE Academy Presentation

Cobbs, Allan and Hall RiskWISE Academy Presentation



11/08/2011 presentation at the Cobbs, Allan and Hall RiskWISE Academy (Birmingham, AL)

11/08/2011 presentation at the Cobbs, Allan and Hall RiskWISE Academy (Birmingham, AL)



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  • Disposable, Discretionary Income1. Define the Problem2. Propose a Solution3. Survey how one might achieve the solution
  • In our society, for all practical purposes the concept of disposable income is a myth. All forms of taxes on both income and capital are completely optional. You can either elect to passively direct funds to the charity chosen for you (Government) or proactively chose the charity of your choice. And with proper planning when making such choice, you can leave your family in the same position dollar for dollar had you made no choice at all. We simply illustrate these concepts to family and empower them to exercise such discretion.Toilet Illustration: Most people do not perceive that they have any choice of this matter; “death and taxes” are apart of life; Patrick Henry is quoted as saying, “If those people who experienced “taxes without represented” would have understood what “taxes with representation” looked like they would have keep their big mouth shout!”
  • Designed primarily for the marketing community, reports the proportion of consumers having financial resources after taxes and daily necessities. Our economy and NPO support is dependent upon this dollar and everyone is out to get it.After Tax, , After Lifestyle, After Dependent Dollar
  • 95% of cash position typically is consumed in necessities, lifestyle and emergency savings; only 1% is what the financial world calls disposable, discretionary incomeCombine this fact, that cash is the least favorable asset class to give from for most individuals in order to maintain and/or increase one’s lifestyle
  • This chart simply illustrates what we just discussed with major life mile markers. Highlights an important issue about financial planning “life occurrences.” Most financial decision making is made during major life occurrences:Graduating High School and leaving the homeGraduation from College and entering into the workforce1st VehicleMarriage1st HomeChildren2nd, 3rd, 4th Home (at least during the 90s)Paying for College EducationRetirementLong-term CareDeathMost wealthy families are more proactive than this during the accumulation and preservation of such wealth. We must become proactive with them or we are never considered in the conversation.
  • Point out the inverted bell curve from 1960 to 1990. Two important issues to consider on this slide:1st = Tax paying citizens represented in our nation today. We are on the cusp of becoming a minority in this country as we speak. 2nd = Demographic shift occurring in our society; we are perhaps the most disproportionally aging society that the world has ever seen thanks in large part to medical research: highest of medical surgeons (longevity) and the pro-life movement’s ability to redefine the sanctity of life and commoditize abortion. Do not confuse or classify what I just said as health, which we trail most of the world.Interesting Quote:U.S. Surgeon General C. Everett Koop who served as thirteenth Surgeon General of the United States during the Reagan Administration from 1982 to 1989. The Surgeon General was asked shortly after leaving his post in the white house what he believed the most important legacy that the next generation of leadership would leave to our country. He made the following sobering statement:“The baby boomers are the first generation to have aborted their retirement, and as a result, might be the first generation to experience their children electing to abort them when they are no longer needed. Euthanasia very well could be their legacy.Debt Ceiling Negotiations: #1 talked about entitlement discussed is Medicare (not Medicaid).
  • Social Security expenditures exceeded the program’s non-interest income in 2010 for the first time since 1983. The $49 billion deficit last year (excluding interest income) and $46 billion projected deficit in 2011 are in large part due to the weakened economy and to downward income adjustments that correct for excess payroll tax revenue credited to the trust funds in earlier years. This deficit is expected to shrink to about $20 billion for years 2012-2014 as the economy strengthens. After 2014, cash deficits are expected to grow rapidly as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers.
  • The inverted ratio of the gainfully employed v greed of entitlementAt our nations height, this ratio reached 8:1 (90s)
  • According to research report released Monday by the Pew Research Center, the current wealth gap is the largest in the 25 years that the government has been collecting this data. The typical U.S. household headed by a person age 65 or older has a net worth 47 times greater than a household headed by someone under 35, according to an analysis of census data released Monday. While the wealth gap has been widening gradually because of delayed marriage and increases in single parenting among young adults, the housing bust and recession have made it significantly worse.
  • On the basis of a recently developed Wealth Transfer MicrosimulationModel (WTMM), we estimate that the forthcoming transfer of wealth will be many times higher than the almost universally cited 55-year figure of $10 trillion. Our low-range best estimate is that over the 55-year period from 1998to 2052 the wealth transfer will be $41 trillion, and may well reach double or triple that amount. Depending upon the assumptions we introduce into the model (for instance, in regard to the current level of wealth, real growth in wealth, and savings rates) we estimate the wealth transfer will range from a lower level figure of $41 trillion to an upper level figure of $136 trillion.
  • Chart Credit: The Millionaire Mind by Thomas Stanley, PhD from Emory University in Atlanta, GAThe following chart simply illustrates what I have found to be true over the past 12 years in serving over 500 families in the financial planning for their household. As one increases in net worth the percentage of that net worth become more heavier weighted in equity investments versus fixed investments.Once you include life insurance into the equation, almost every family that we proactively visit with fall into one of these three categories:$1-2M: capacity to make a substantial charitable bequest and/or need for planned gift to enhance lifestyle during retirement$5-10M: need for a donor advised fund for current giving and capacity to make a major gifts during life while experiencing major life changes$10M: need for estate tax planning and can become a cornerstone component of an institutions future vision
  • Assets Owned Pie Chart: illustrates the typically make up of asset holdings in U.S. householdAssets Giving Pie Chart: illustrates the typically make up of asset given in U.S. householdIt’s a different conversation
  • All organizations in existence today are already fully endowed to operate at their present capacity. The provision is either from income, capital, debt or a combination.Human Endowment – Income-based support provided by the “sweat of the brow” of ministry partners-The problem is that human endowment will always exit (attrition rate is typically around 20% year)Association of Fundraising Professionals and The Urban Institute's half decade research:Fundraising Effectiveness Project (FEP)Financial Endowment – The process of simply capitalizing the support of the human endowment to provide for the organization once the individual is no longer in a position to do so.
  • Pay the Tax,Postpone the Tax,Passively Accommodate the Tax, orProactively Avoid the Tax.Are you presently showing your donors:How Charitable Agreements makes Income Taxes Optional?How Charitable Agreements makes Capital Gains Tax Optional?How Charitable Agreements makes Taxes on Qualified Retirement Accounts Optional?How Charitable Agreements makes Gift, Inheritance and Estate Taxes Optional?
  • Peculiar is a city in Cass County, Missouri with a population of 2,604 according to the 2000 census. The town motto is, appropriately enough, “Where the ‘odds’ are with you.”Peculiarity:People, Property,Pro”fixes” (titling of property) and ProbatePeople: Property:Pro”fixes”:Probate:
  • Protection:  Proactively protect the dignity of the people involved in the wealth distribution process.Inability and DisabilityProblems:  Prevent the creation of any environment that would put sons and daughters at odds with one another for the rest of their lives.  This will typically start with either whom you leave in charge or the gifting of personal property.Property:  Illustrate how individuals/couples can proactively seek maximum discretion over their personal property both to meet today’s lifestyle, tomorrow when life occurs and if death were to occur tonight.  Posterity:  Increase the size and/or enhance the quality of the inheritance left for their dependents and loved ones.Providence:  Provide a process for the Holy Spirit to direct our prayers and reveal discernment on what Our Lord would have us do with that which he has entrusted unto us.
  • Copenbarger & Voorhees, LLP: Provides legal documents to assist in implementation;review and provide an opinion letter,Capin Crouse, LLP: Tax compliance and auditing for integrity of all technical gift proposals. National level accounting firm that has been dedicated to serving the nonprofit and charitable world since 1972.Cornerstone Management: Founded in 1991, asset management and deferred gift administration for:Endowment FundsCharitable TrustsGift Annuity ProgramsSplit Interest GiftsLifestyle Giving:National Christian Foundation:Kingdom Advisors:

Cobbs, Allan and Hall RiskWISE Academy Presentation Cobbs, Allan and Hall RiskWISE Academy Presentation Presentation Transcript

  • Cobbs, Allen and Halls RiskWISE Academy 11/08/2011
  • Disposable IncomeDI = Gross Income – Personal Taxesie. Consumption + Saving= Disposable Income
  • Discretionary IncomeGross income - Taxes - Necessities=Discretionary Incomeie. AGI – Lifestyle – Dependents=Discretionary Income
  • Capital v Cash
  • Season of Margin (Ages 47-67)
  • The Lost Generation
  • Discretionary Income Dilemma1996 - First Baby Boomer turns 472011 - First Baby Boomer retires at age 652026 - Last Baby Boomer retires at age 65
  • Summary of SSA’s 2011 Annual ReportChart D—OASI, DI, and HI Trust Fund Ratios(Assets as a percentage of annual cost)http://www.ssa.gov/OACT/TRSUM/index.html
  • Societal Shiftgainfully employed v. greedfully entitled
  • Pew Research CenterMonday, November 7, 2011
  • So What’s the Solution?
  • Transfer of a LifetimeTable 1: Boston College FWP Wealth Transfer (Lower Level Estimates) Neg or Zero $1 to $.9M $1M to $4.9M $5M to $9.9M $10M to $19.9M $20M or more TotalNumber of Estates 4,981,7825.67% 76,593,32287.20% 5,325,0556.06% 495,0670.56% 240,7500.27% 203,3360.23% 87,839,311 100.00%Value of Estates ($50,856) - $13,933,317 34.27% $11,361,859 27.95% $3,338,664 8.21% $3,334,276 8.20% $8,687,63521.37% $40,604,894 100.00% - 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 32.90% 29.15% 9.28% 9.65% 18.98%Estate Fees $784 0.05% $523,820 $464,098 $147,692 $153,640 $302,147 $1,592,182100.00% - 3.76% 4.08% 4.42% 4.61% 3.48% 3.92% 3.19% 29.73% 15.20% 17.04% 34.85%Estate Taxes $0 0.00% $270,524 $2,521,800 $1,289,458 $1,445,628 $2,956,108 $8,483,517 100.00% - 1.94% 22.20% 38.62% 43.36% 34.03% 20.89%Bequest to Charity $0 0.00% $717,54211.91% $924,96015.36% $463,6267.70% $526,158 8.74% $3,389,89756.29% $6,022,182100.00% - 5.15% 8.14% 13.89% 15.78$ 39.02% 14.83% 50.58% 30.34% 5.85% 4.92% 8.30%Bequest to Heirs $0 0.00% $12,421,430 $7,451,001 $1,437,888 $1,208,851 $2,039,483 $24,558,653100.00% - 89.15% 65.58% 43.07% 36.26% 23.48% 60.48%Table 2: Boston College FWP Wealth Transfer (Upper Level Estimates) Neg or Zero $1 to $.9M $1M to $4.9M $5M to $9.9M $10M to $19.9M $20M or more TotalNumber of Estates 3,746,158 4.26% 58,915,72567.07% 20,448,961 23.28% 2,794,0773.18% 1,191,398 1.36% 742,991 0.85% 87,839,311 100%Value of Estates ($19,348)- $17,558,323 12.89% $46,863,759 34.41% $19,142,272 14.06% $16,237,734 11.92% $36,374,157 26.71% $136,156,897 100% - 100% 100.00% 100.00% 100.00% 100.00% 100.00%Estate Fees $428 0.01% $664,087 12.02% $2,000,27536.22% $848,144 15.36% $747,373 13.53% $1,262,818 22.86% $5,523,125100% - 3.78% 4.27% 4.43% 4.60% 3.47% 4.06% 2.51% 31.24% 18.49% 17.33% 30.43%Estate Taxes $0 0.00% $1,018,428 $12,687,522 $7,510,733 $7,040,021 12,358,105 $40,614,810100% - 5.80% 27.07% 39.24% 43.36% 33.97% 29.83% 4.01% 17.03% 10.98% 10.48% 57.50%Bequest to Charity $0 0.00% $994,180 $4,216,581 $2,719,327 $2,594,719 $14,238,520 $24,763,327 100% - 5.66% 9.00% 14.21% 15.98% 39.14% 18.19%Bequest to Heirs $0 0.00% 14,881,628 22.80% $27,959,381 42.83% $8,064,06712.35% $5,855,621 8.97% $8,514,71313.04% $65,275,411 100% - 84.76% 59.66% 42.13% 36.06% 23.41% 47.94%Reference: http://www.bc.edu/content/dam/files/research_sites/cwp/pdf/m_m.pdfSource: Boston College The Center on Wealth and Philanthropy (CWP)
  • Capital Allocation Millionaires Five Largest Asset Classes 30 25 20 15 10 5 0 Public Private Cash Real Estate Bonds Securities Stock Equivalent$1M : $2M 16.8 8.5 18.1 8.8 7.5$5M : $10M 23.6 15.8 15.1 12.4 4.1$10M+ 26.4 28.3 11 12.4 2.3
  • Cash v. Capital Cultivation
  • Edifying Short-term Support… Insuring Long-term Sustainability…SHORT-TERM DILEMMA: LONG-TERM SOLUTION:CULTIVATION OF HUMAN ENDOWMENT CAPITALIZATION OF HUMAN ENDOWMENT2 Responsibilities of Advancement: 2 Opportunities for Advancement:1,000 Donors  10%/yr Gifts of Capital=1,100 Donor Households Mission and/or and/or1,000 Donors @$1,100/yr=$1,100,000 Support Gifts of Estates CapacityAttrition Rate @20%/yr $10,000,000 Capital @10% =$1,000,0001,000 Donors  20%/yr=800 Donors Human Financial and/or$1,000,000 Support=$800,000 Institution Individual
  • AttitudeApproachAudience Access Ask
  • Conversation for All Seasons
  • “Where the ‘odds’ are with you.”
  • Perceived Needs Providence Posterity Property ProblemsProtection
  • Strategic Alliances
  • Birmingham, AL EndorsementsRobert Dewhurst, EdD, CSP, CFREExecutive Vice President of Development, Alabama Baptist Children’s Homes & Family MinistriesJack is a highly personable, focused consultant primarily serving charitable organizations. He is highly energeticand possesses a valuable skill set that has had a positively impacts on our organization. His integrity is abovereproach. If you are seeking help in improving your effectiveness it would be worth the investment of time to learnhow he can serve you.Kay Sanford, Director of Development, Care NetJack is one of the most personable gift and estate specialists I have ever met. He is extremely professional andhis passion for planned giving goes beyond just the knowledge of the subject. Jack emphasizes relationshipbuilding, and walks his clients step by step through each process. Above all, Jack is nevercondescending, although his knowledge far surpasses that of most in his position. I have and will continue torecommend Jack to any company seeking help in the planned giving department.Sandor Cheka, III, Development Officer, The Foundry Rescue Mission and Recovery CenterJack is a wonderful professional who is constantly seeks the best for his clients. He contacted me to develop apartnership with one of his clients that would mutually benefit both organizations. The partnership returned greatrewards for both. Jack is diligent in his efforts and is extremely focused on the importance of long term strategicgoals. Jack is a principled businessmen who was easy to work along side.Reference Source: http://www.linkedin.com/in/jackeyer
  • Jack Eyer, Gift & Estate Design Specialistjack@givingventures.org(205) 202-0205 office(205) 222-5270 mobilehttp://www.linkedin.com/in/jackeyer