Planned Giving Demystified Dec 2012

Nutter McClennen & Fish LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Telephone 617.439.2000
www.nutter.com
PLANNED GIVING
DEMYSTIFIED
Julia Satti Cosentino, Esq.
Nutter Charitable Advisors
December 2012

Nutter McClennen & Fish LLP • www.nutter.com 2
The first planned giving specialist?
“To give away money is an easy matter
and in any man’s power. But to decide to
whom to give it, and how large and when,
and for what purpose and how, is neither in
every man’s power nor an easy matter.”
ARISTOTLE “ETHICS”

Traditional focus of planned giving
specialists
1/ “The Future of Charitable Gift Planning: A Report of the NCPG
[Nat’l. Committee on Planned Giving] Strategic Directions
Taskforce”, Journal of Gift Planning, Volume II, Number 2, p. 52
(June 2007)
• HOW should the gift be made?
• WHEN should the gift be made?
• With WHAT asset should the gift be made?1/

Success stories
According to an Internal Revenue Service
analysis, there are:
• 93,828 Charitable Remainder Unitrusts with total
assets of $86.9 billion
• 15,862 Charitable Remainder Annuity Trusts with total
assets of $7.1 billion
• 6,617 Charitable Lead Trusts with total assets of $20.9
billion
• 1,402 Pooled Income Funds with total assets of $1.3
billion

Trends to watch
Traditional planned gifts may be perceived as
less valuable to some charities and/or donors
• trend is toward hiring just a major gifts officer and then
hoping for the best in terms of planned giving
• trend is toward younger donors, and many older
donors as well, making more large cash gifts
• private foundations, supporting organizations and
donor advised funds are proliferating as record
numbers of donors are implementing gift structures that
increase their active involvement2/
____________________
2/ NCPG Taskforce Report

NCPG Taskforce Report
A number of planned gifts are thwarted or not
pursued due to lack of knowledge by major gifts
officers and professional advisors.

• Charitable Devise
• Charitable Gift Annuity
• Charitable Remainder Trust
• Charitable Lead Trust
• Other vehicles
• Tips and resources
• Quiz
• Q and A
Agenda

• Structure
– Will or Trust (codicil or trust amendment)
– Vested or Contingent
– Period of estate administration
– Massachusetts Uniform Probate Code (“MUPC”),
enacted March 31, 2012
– Informal probate: Notice is given to charitable
devisees and the Attorney General at least 7 days
before filing with probate court
– Formal probate: Notice is given to charitable
devisees and the Attorney General after filing with
court and upon receiving citation
Charitable Devise

• Benefits to Donor
– Revocable
– Financial impact is in the future
– Estate tax deduction
• Considerations for Charity
– Lack of certainty
– Timing
– Restrictions
– Involvement of Attorney General’s office
Charitable Bequest (continued)

Charitable Gift Annuity
•Structure
– Contract
– Donor irrevocably transfers assets to Charity
in exchange for agreement by Charity to pay
fixed amount periodically to Donor or
Designee(s) for life
– General obligation of Charity backed by all of
its assets

Charitable Gift Annuity (continued)
•Benefits to Donor
– Immediate income tax deduction
– Predictable payments continue for life
– Annuity payments may be part ordinary
income, part capital gain income and part
tax-free return of principal
– Contract is simple

Charitable Gift Annuity (continued)
•Considerations for Charity
– Contract is simple
– What gift annuity rate?
– Risks surrounding gift annuity pool
– Tax filings
– Out-of-state donors

Deferred Charitable Gift Annuity
- Immediate income tax deduction
- Payments of fixed amount begin in the
future
- Typically a higher annuity rate and a larger
charitable deduction the longer the deferral
period

Charitable Remainder Annuity Trust
•Structure
– Trust instrument
– Donor irrevocably transfers assets to
trustees to hold in segregated trust account
– Trust terms provide for trustees to pay fixed
amount periodically to beneficiary(ies) for life
or term of years
– Annuity amount determined at inception
– On termination, remainder to Charity

(continued)
– Predictable payments continue for life or
term of years
– Choice of trustee
– Trust is separately administered
– No upfront capital gain tax on transfer of
appreciated assets to trust or at time of sale
of those assets by trustee
– Annuity payments taxable to beneficiaries
under four-tier system
– Selection of Charity can be changed

(continued)
•Considerations for Charity (and
Trustee)
– Acceptance of trustee office
– Lifetime or testamentary
– Length of annuity interest
– Funding assets
– Trust terms (spendthrift provision, limited
power of amendment)
– Tax filings

Charitable Remainder Unitrust
•Structure
trustees to hold in segregated trust account
– Trust terms provide for trustees to pay fixed
percentage to beneficiary(ies) for life or term
of years
– Unitrust amount determined each year
– On termination, remainder to Charity

(continued)
•Variations
STAN – CRUT
NI – CRUT
NIM – CRUT
FLIP – CRUT

(continued)
– Additional gifts are permitted
– Payments may grow as value of trust’s
principal grows
– Payment options
– Choice of trustee
– Trust is separately administered
– No upfront capital gain tax on transfer of
appreciated assets to trust or at time of sale
of those assets by trustee

(continued)
• Benefits to Donor (continued)
– Suited for temporarily illiquid asset or
portfolio of growth securities
– Unitrust payments taxable to
beneficiaries under four-tier system
– Selection of Charity can be changed

(continued)
Trustee)
– Acceptance of trustee office
– Lifetime or testamentary
– Length of unitrust interest
– Funding assets
– Trust terms (spendthrift provision, limited
power of amendment)
– Tax filings

Charitable Lead Trust
•Structure
trustees to hold in segregated trust
account
– Trust terms provide for trustees to pay
fixed amount (annuity) or fixed
percentage (unitrust) to Charity for life of
individual(s) or a term of years
– On termination, remainder to
beneficiary(ies)
– Grantor versus non-grantor

Charitable Lead trust (continued)
– Grantor CLT: Immediate income tax
deduction, but future tax obligation
– Non-grantor CLT: federal gift tax
deduction on transfer AND on
termination, any appreciation that has
accumulated during trust term will pass
to beneficiaries free of gift or estate tax
– CLUT if GST concern

Charitable Lead Trust (continued)
Trustee)
– Non-grantor CLT: trust pays income tax
on trust income in excess of annual
payment obligation AND trustee takes
donor’s basis and trust is taxable on net
gains realized (testamentary = stepped
up basis)
– Tax filings

Other Vehicles for Benefitting Charity
•Pooled income fund
•Bargain sale
•Beneficiary designation
•Health and Education Exclusion Trusts
(HEETs)

Tips and Resources
•Determining the rate
•Projecting the numbers *
•Spotting the issues*
•Drafting the proposed documents*
•Holding the assets
•Filing the returns
*Independent counsel for donor

Quiz Time
FACTS: Donor wants to give, but is afraid of
commitment; wants a revocable arrangement
that could help Charity in the future, but does not
impact current cash flow or asset picture
PROPOSAL: BEQUEST

Quiz Time
FACTS: Donor with portfolio of appreciated
stock, as well as charitable goals, who wants to
benefit Charity while retaining a predictable
income stream, and insists on simplicity.
PROPOSAL: CHARITABLE GIFT
ANNUITY

Quiz Time
FACTS: Donor with low-basis real estate and
charitable goals, who wants real estate sold
and proceeds reinvested in a portfolio of
securities that would produce an income
stream, but does not want immediate reduction
on account of capital gain tax.
PROPOSAL: FLIP - CRUT

Quiz Time
FACTS: Donor who is in the midst of a
high earnings period and wants a
charitable gift that will provide for a
steady stream of income in the future
when she reaches retirement age (and
expects to have less taxable income).
PROPOSAL: DEFERRED CHARITABLE
GIFT ANNUITY

Quiz Time
FACTS: Donor with a mix of income
producing and appreciating assets who was
already considering starting a program of
annual charitable giving, but is now also
thinking about how best to pass assets onto
his children and grandchildren
PROPOSAL: NON-GRANTOR CHARITABLE
LEAD UNITRUST

The End
Any questions?

Planned Giving Demystified Dec 2012

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