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Planned giving power pt


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Planned giving power pt

  1. 1. PLANNED GIVINGAre You Leaving Dollars Behind?
  2. 2. What is Charitable Gift Planning?Charitable Gift Planning is the process of cultivating, designing, facilitating,and stewarding gifts to charitable organizations.Charitable Gift Planning:• Uses a variety of financial tools and techniques for giving• Requires the assistance of one or more qualified specialists• Utilizes tax incentives that encourage charitable giving, when appropriate• Covers the full spectrum of generosity by individuals and institututions, and is based on powerful traditions of giving in the United States
  3. 3. What are Planned Gifts?Planned Gifts are a variety of charitable giving methods that allow you to expressyour personal values by integrating your charitable, family, and financial goals.Making a planned charitable gift usually requires the assistance of the charity’sdevelopment professional and/or a knowledgeable advisor such as an attorney,Financial planner, or CPA to help structure the gift.Planned Gifts can be made with cash, but many are made by donating assetsSuch as securities, real estate, art, or business interests – the possibilities areendless. Planned Gifts can provide valuable tax benefits and /or lifetime income forthe donor, donor and spouse, or other family members. The most frequently-madeplanned gifts are bequests to charities, made via wills or trusts.
  4. 4. Why Make a Planned Gift?Many people want to make charitable gifts but need to do so in a way that helps meettheir other personal, family, or financial needs. Planned Gifts give donors the option formaking charitable gifts in a ways that may allow one to:• Make a larger gift than thought possible• Increase current income• Plan for the future needs of a spouse or loved one• Provide inheritances for heirs at a reduced tax cost• Reduce income tax and/or avoid capital gains tax• Diversify investment portfolio• Receive income from personal residence or farm• Plan for the transfer of a business• Leave a charitable legacy for future generations
  5. 5. Types of Planned Gifts• Bequests – make up over 80% of all Planned Gifts• Life Insurance• Retirement Accounts• Life Estate• Charitable Remainder Trust (CRT)• Charitable Lead Trust (CLT)• Charitable Gift Annuity (CGA)• Immediate LegacyTM• Donor Advised Fund (DAF)• Pooled Income Fund (PIF)• Community FoundationMore Complex Planned Giving Strategies• Bargain Sales• Private Foundations• Operating Foundations• Supporting Organizations
  6. 6. Bequest• Made by will• Not complex• But represent 83% of planned gifts, per a study of university giving by Jonathon Gudema
  7. 7. Bequests and Estate Tax• Deductible for estate tax if – Made to eligible charity – The amount can be ascertained with reasonable certainty – Passes in appropriate legal form rather than executor’s discretion – Cannot be defeated by a contingency, event, or person
  8. 8. Qualified Disclaimer• Estate will qualify for estate tax deduction if a qualified charity gets the bequest as a result of a qualified disclaimer. – “All my estate to St. Barnabas Church, except for a bequest of $250,000 to my daughter.” – If daughter properly disclaims the money; it passes to the charity; and is deductible from the estate.
  9. 9. Now/Later?• Give now or at death?• Income tax deduction is available for life time gifts – that is one advantage• Charities prefer “now” money• Donor may enjoy giving while alive• Advisors can compute whether a major life time gift is possible
  10. 10. Life Estate• Can give a personal residence, vacation home, farm or ranch, while retaining the right to live there.• Transfer made by deed, not trust• Charity will get property without restrictions• Deduction is for remainder interest
  11. 11. Life Estate Calculation• Factors in valuing the remainder interest: – Age of donor(s) or term of the agreement – Value of the building, useful life, and salvage value – Value of the land – 7520 rate (used as discount rate) 2.4% as of 1/11 – Can refer to for gift calculators
  12. 12. Gift of Real Estate• Real estate is 50% of individual wealth, but only 2% of gifts• A largely untapped market for planned gifts
  13. 13. To Prepare to Accept Real Estate• Include in Gift Acceptance Policies• Have a Gift Acceptance Committee• Establish minimum gift size• Consider transaction costs & carrying costs• Consider need for appraisal• Consider EPA inspection• Consider need for a real estate attorney to review title• Consider holding period – when will it sell?• Who will pay any debt associated with property?
  14. 14. Easements• Income tax and estate tax deduction equal to value of the easement• Estate exclusion of remaining value – 40% excluded up to $500,000 – Exclusion is reduced if the easement is less than 30% of the land’s value – Reduction is 2% for every 1% that the value of easement is below 30% of total value of property – Other complex rules apply
  15. 15. Valuing Easements• Fair Market Value of Easement: – Find by comparing to similar easements, or, – Take Fair Market Value of property before easement minus FMV after easement• Qualified Appraisal required for deduction over $5,000.
  16. 16. Retirement Accounts• Gain inside an IRA, 401(k), or deferred annuity is taxable at death as “income with respect to a decedent.”• IRD is taxed first under the estate tax rules. Then it is taxed again under the income tax rules. The income taxable amount is reduced by the estate tax attributable to the IRD.
  17. 17. Practical Points• Clients generally have a variety of assets.• Capital gain assets (in years other than 2010), get a stepped up basis at death.• IRD(Income in Respect of Decedent) assets can be subjected to double tax: estate tax and income tax.• It just makes good sense to send the IRD assets to charity, for those making gifts, and the capital gain assets to heirs.
  18. 18. Lifetime Gifts of Deferred Annuities• For annuities issued before April 22, 87, a potential tax trap exists. Based on a private letter ruling, if the charity surrenders the contract in a year later than the donor’s gift – Donor gets deduction for basis in year of gift – Donor is taxed on full gain in the year the charity surrenders the contract
  19. 19. Uses of Life Insurance• Gift of existing policy: – Income tax deduction for fair market value or basis, if less. – Deduct premiums up to 50% of AGI if check is made out to charity which then pays premium – Deduct up to 30% of AGI if charity owned policy premium is paid by donor direct to insurance company
  20. 20. Encumbered Life Insurance• Gift of a policy subject to a loan is considered a bargain sale, resulting in income to donor• Red Flag for donor
  21. 21. Life Insurance Valuation• Gifts of existing life insurance policies with fair market value in excess of $5,000 require a qualified appraisal
  22. 22. Uses of Insurance in Giving• Give old policy• Give premiums towards a new charity owned policy• Use insurance to give heirs what is “right” for them, so gift can go to charity from other estate assets
  23. 23. Uses of Insurance• Insurance owned by a trust outside of the estate can buy assets from the estate that are not appropriate for charity to own (like a farm or business).• Then the cash can go to a public charity or to a family foundation, while the heirs or their trust get the farm or business.
  24. 24. Uses of Insurance• Insurance can replace assets gifted to charity• Can be teamed with a CRT – Example: Parents give $1 million to a CRT. – Income tax deduction and cash flow from the trust are used to replace, in whole or in part, the $1 million given.
  25. 25. Insurance and IRA• Make charity the beneficiary of the IRA• Meanwhile, use income from the IRA to fund life insurance payable to heirs• Result can be better than having the IRA go to heirs, while some other asset goes to charity
  26. 26. Zero Estate Tax Planning• Ask wealthy clients if they have good planning and they say they do. Ask if they are still paying estate tax, and many say they are.• To get to zero tax, charitable tools may be needed• As part of such a plan, life insurance often finds a natural role
  27. 27. Life Insurance• Life insurance is a useful tool within an overall estate plan. Such planning can result in excellent outcomes for both heirs and charity.• Gifts of new or existing policies to charity makes emotional sense to small givers who can see their small gift become a big gift at death.
  28. 28. Insurance Philosophy• Insurance is a fair deal, not magic money.• Charities need to consider the carrying cost of maintaining large numbers of small policies.• What if donors don’t continue the premiums?• What happens if policies lapse?• Gift acceptance policies should address accepting and administering insurance.
  29. 29. Insurance Philosophy• Charities are well advised to work with insurance professionals who place insurance either as a straightforward gift or within a good estate or financial plan• Aggressive insurance concepts, often involving third party owners, or debt financing, lead to mistrust among charities of insurance people• Knowledgeable fundraisers/advisors can lead in good planning, for clients and charity, while avoiding questionable concepts
  30. 30. CRTs, CGAs, and PIFS• Each requires donor to make an irrevocable transfer to a charitable entity• Each generates an income stream to the donor or an individual or individuals named by the donor.• Each is part charitable and part non-charitable• Each generates an income tax charitable deduction for the charitable portion of the gift• We will consider each tool in turn
  31. 31. Charitable Remainder Trust• An irrevocable arrangement in which a donor transfers assets in trust in exchange for an income interest.
  32. 32. Parties to a CRT• Donor(s)• Trustee – Administration – Investment management – Tax reporting• Income Beneficiary (donor or other)• Remainder Beneficiary• Heirs
  33. 33. Charitable Remainder TrustsDonor CRT Charity• Donor gifts cash or assets• Deduction is for remainder interest• Income back to donor• Remainder to charity at end of the trust term
  34. 34. Benefits of CRT• Partial deduction• Income generally for life, or term of years up to 20• Sell asset without paying capital gain• Diversify holdings
  35. 35. Types of CRT• Charitable Remainder Annuity Trust (CRAT)• Charitable Remainder Unitrust (CRUT)• Net Income Charitable Remainder Unitrust (NICRUT)• Net Income With Makeup Charitable Remainder Unitrust (NIMCRUT)• Flip Unitrust
  36. 36. CRAT• Pays fixed income to income beneficiaries• Fixed % of initial contribution• No adjustments to payout based on trust balance• No additional contributions to the trust
  37. 37. CRAT• Must pass 5% probability test (a less than 5% chance that the trust will exhaust before the end of its term, based on factors in place when trust is established)• Must pass 10% remainder test (must show at least a 10% remainder based on current assumptions when trust is established)• CRAT may in reality exhaust itself, terminating income payout and leaving nothing for charity
  38. 38. CRUT• Pays a fixed percentage of whatever the trust has grown to or shrunk to• Income to donor varies• Additional contributions are allowed• Must pass 10% remainder test• 5% test always met – the trust pays a percentage of the remaining balance, and so the trust may dwindle but not exhaust.
  39. 39. NICRUT• Pays the lesser of payout % or distributable net income (DNI)• Not allowed to distribute principal• DNI includes rent, dividends, interest, royalties• Trust document may include capital gains realized post-funding in DNI definition, if state law allows• Prefunding capital gains may not be included in DNI, even if realized post-funding
  40. 40. NIMCRUT• A special NICRUT that builds up an account of undistributed DNI from previous years• May make up payout % for current year by drawing on undistributed DNI account• Trust document may include capital gains realized post-funding in DNI definition, if state law allows
  41. 41. “Spigot” NIMCRUT• Defer income to retirement, say, or college funding• CRT asset strategies control the flow of income• Among the income control methods: - variable annuities - zero-coupon bonds - zero dividend stock
  42. 42. FLIP CRUT• NICRUT or NIMCRUT that becomes Standard CRUT on occurrence of predetermined event• No income paid out when no income available• Good for gift of, say, land, which initially produces no income.• Converts to a Standard CRUT when assets are converted to produce both income and growth, which may then be used to make the payout.
  43. 43. Permissible Trust Terms• Life, or lives• Term of years not to exceed 20• Combination of the above
  44. 44. 4 Tier Taxation• “Worst first” 1. Regular income from current and prior years 2. Capital gains from current and prior years 3. Tax-free income and other income from current and prior years 4. Untaxed return of principal• Trustee can adjust beneficiary taxes through investment strategies
  45. 45. Issues in Choosing Format• Income needs of income beneficiaries• Risk tolerance of income beneficiaries• Nature of the funding assets - E.g., use of real estate or other non income- producing property may dictate choice of a NICRUT or NIMCRUT or Flip Unitrust
  46. 46. Among Assets to Avoid• Partnership interests – Income passes through to trust creating unrelated business taxable income which is taxed at 100%• Personal residence – Cannot live in residence without committing self dealing
  47. 47. Excellent Assets• Appreciated publicly traded securities• Unencumbered real estate
  48. 48. The Funding Decision• Funding decision is the final step in the process of analysis, choice, and strategy that flow out of and determine the identity of the assets chosen by the donor to accomplish his or her long-term charitable and financial intentions• Choice of assets depend upon type of CRT and donor’s planning objectives
  49. 49. Funding a CRAT• A CRAT may only be funded once over its life• No additional contributions are allowed• All assets must be transferred to the trust simultaneously - E.g., cash, stocks, and mutual funds used to fund the CRAT must be transferred to trustee at the same time
  50. 50. Limitations on Transfer of Assets• Contractual or regulatory pre-transfer requirements must be met - E.g., restricted stock is subject to SEC rules and disclosure requirements, as well as contractual limitations which may delay effective date of transfer• Timeliness is important to avoid significant fluctuations in value of funding assets
  51. 51. Asset Sale and Management• Asset management strategy must be developed prior to funding• Asset sale, if required, must be planned and accomplished in a timely manner• All technical, legal, administrative requirements must be met in a timely way
  52. 52. Issues in Choice of Payout• Expected investment performance• Needs of income beneficiaries• Risk tolerance of income beneficiaries• Charitable remainder desired• Type of trust
  53. 53. Who Bears the Investment Risk?• CRAT shifts investment risk to remainder beneficiary• Unitrusts distribute market risk more evenly between income and remainder beneficiaries• By limiting income payout to DNI, net income unitrusts, especially NICRUTs, shift market growth to remainder beneficiary
  54. 54. Remainder Beneficiary Public Private• Cash gifts 50% 30%• Appreciated property 30% 20% AGI Deduction Limits Apply
  55. 55. Estate Tax Issues• Assets in CRT are includible in the donor’s estate• Charitable deduction generally will remove CRT assets from the taxable estate• Income to spouse may be excluded from decedent donor’s estate• Income to anyone other than spouse causes inclusion of all CRT income in the decedent donor’s estate
  56. 56. Administrative Concerns• Strict federal and state reporting requirements• Income distributions must be timely• Requires available funds to pay distributions• If liquid funds are unavailable, required payment of in kind assets
  57. 57. Use in Sale of Business• Transfer stock to CRT then sell the stock• Avoids capital gains taxes at time of sale• Get deduction for remainder interest• Converts non-liquid equity in business into income- producing CRT assets• Investments in CRT enjoy tax-free growth• An advanced technique requiring expert legal counsel
  58. 58. Gift Annuity GiftDonor Charity Annuity• Donor gifts cash or assets• Often used for gifts of $50,000 or even less• The charity itself is the payer; no trust involved• Deduction is for remainder interest• Income back to donor is taxed with basis, capital gain, and incomeprorata
  59. 59. Benefits of Gift Annuity• Income for life• Partial income tax deduction• Can defer capital gain• No legal work required• Can be done for small amounts
  60. 60. Essential Elements• One or two lives• Not a term of years• The annuity payments are fixed and are not based on the charity’s own return• Gift portion must represent at least 10% of the gift’s value on date of contribution
  61. 61. Payout• Based on income beneficiary’s age at time of gift• Charity is free to set its own rates• Uniform (suggested) rates set by American Council on Gift Annuities (since 1927)• ACGA rates designed to retain half of gift for charity at life expectancy
  62. 62. Immediate Gift Annuity• Payments start immediately• Payments guaranteed for life of donor or donors• Provides income tax deduction for the donor based on value of gift minus present value of payments• Capital gain is spread over life of donor
  63. 63. Deferred Gift Annuity• Payments start in a later year determined by donor• Tax deduction is taken at time of gift, based on age, payment, and start date of annuity
  64. 64. Stepped Gift Annuity• Payment stream increases over life of annuitant• Schedule set forth in annuity agreement• Also may be accomplished with a series of gift annuities
  65. 65. Charity’s Management Issues• Secured by the full faith and credit of the issuing charity• Return is guaranteed by the charity• Annuity payment is not conditioned upon a return received by charity• May be reinsured by charity’s purchase of a commercial annuity, subject to state law
  66. 66. Income Beneficiary• Any individual named by donor at time of gift• Up to two individuals may be named• If other than donor or spouse, a taxable gift occurs• Tend to issued at older ages, 65 and up
  67. 67. Prospects• Typical gift annuity donor is single, age 77• Median CGA is $57,000• Competes with a CD for those with charitable intent
  68. 68. Advantages to Donor• Easy to understand• Provides donor with guaranteed income stream• Transaction is part gift• Income tax charitable deduction in year of gift• Beneficial capital gains treatment for donor• Simple documents, little or no legal expense
  69. 69. Cautions• Charity dies before donor? Donor is left as a general creditor• State laws govern; some require registration• Not all charities offer these• Look for a strong stable organization• Some charities have large blocks of CGAs and may not have sufficient assets backing them, on an actuarial basis
  70. 70. Pooled Income Fund Donor PIF Charity• Donor gifts cash or assets into commingled fund with assets from otherdonors• Gets prorata share of income back• Gets deduction for the remainder interest• Income retains its character, i.e, if dividends paid out, then taxed asdividends; if interest paid out, taxed as interest, etc.
  71. 71. Pooled Income Funds• Fund is created and operated by a charity• Transfer to the fund is irrevocable• Donor income based on value of contributed assets compared to total fund value at time of gift• Fund distributes income to beneficiaries for life• At death of income beneficiary, fund liquidates interest of that beneficiary and distributes underlying assets to the charity
  72. 72. PIF Income Tax Issues• Provides a partial income tax charitable deduction• Deduction based on remainder interest computed using fund’s highest income in past 3 years• Avoids tax on long-term gain contributions• PIF pays tax on income, less amounts paid to beneficiaries, less long-term capital gains• Short-term gain taxed unless distributed
  73. 73. Income Beneficiaries• May include the donor, donor’s spouse, children, or other beneficiaries• Beneficiary must be alive at the time the fund is created• Beneficiary interest is for life
  74. 74. Contribution Assets• Many charities restrict contributions to cash, marketable stocks and marketable bonds to simplify investment issues and avoid problems
  75. 75. Advantages• Income beneficiary receives income for life• Donor can make small gifts without legal costs• Donor receives a charitable deduction• Long-term gain property avoids capital gains tax
  76. 76. Disadvantages• Fund operation is hard to understand• Fund startup and maintenance expenses• Once started, charities may feel stuck with it• Income today tends to be quite low
  77. 77. Charitable Lead Trusts• “Split-interest” gift with a “lead (income) interest” and a remainder interest• “Lead interest” goes to one or more qualified charitable organization(s)• Remainder interest goes to non-charitable entity• NOT TAX EXEMPT
  78. 78. Simple Points to Remember• 90+% of CLTs are for estate tax reduction, not income tax reduction.• Used by very wealthy families to reduce or zero out an estate for transfer tax purposes.• Can be set up during life or at death• Compete with Foundations in some respects as grant-making entities.
  79. 79. Simple Points to Remember• Low Federal rate, the 7520 rate, is ideal for CLTs (2.4% as of 1/1/11)• Depressed asset prices going into CLT are ideal, if asset is expected to rebound• So, today is historically the best time ever for the most common CLT – called “Non-grantor CLT
  80. 80. CLT Formats and Terminology• CLUT • Testamentary – Income to charity varies – Set up to start at death• CLAT • Inter Vivos – Income to charity fixed – Set up during lifetime • Non-Grantor – Estate tax tool • Grantor – Income tax tool
  81. 81. Charitable Lead Trusts Asset AssetDonors CLT Remainder For non-grantor, CLT remainder Income goes to heirs; with grantor trust may go back to donor Charities
  82. 82. Factors in Computing Charitable Element• Charitable element is a function of term trust, discount rate, trust type (unitrust or annuity trust), and payout rate• A longer term, higher payout, and lower discount rate (7520 rate), are all conducive to a larger charitable deduction for estate tax purposes (nongrantor CLT) or income tax purposes (grantor CLT).
  83. 83. Non-Grantor CLT Donor CLAT Charity Heir• Donors give asset to CLT• Income goes to charity• At end of term, balance goes to Heir
  84. 84. Benefits of Non-grantor CLT• Zero out an asset • Help charity with• Or greatly reduce its stream of income value for transfer tax during trust term• Can zero out an entire estate
  85. 85. Permissible Payout Term• For either a fixed term or “lives in being” – limited to one or more of the donor, the donor’s spouse, or a lineal ancestor or spouse of a lineal ancestor of all of the remainder beneficiaries• Remainder to any non-charitable entity – may include Donor or Donor’s “heirs”
  86. 86. Non-Grantor CLT• Trust is taxed as a separate entity• Trust itself entitled to an unlimited income tax deduction for charitable gifts paid in accordance with trust terms.
  87. 87. Non-Grantor CLT• Donor gets no income tax deduction for setting up the non-grantor CLT• The trust has income from investments, but gets offsetting income tax deduction when payout is make each year to charity.• This is transfer tax play, not an income tax play!
  88. 88. Charitable Lead Annuity Trust• Irrevocable gift to Trust, paying a fixed amount to Charity annually – may be stated as a fixed dollar amount or – may be stated as percentage of initial value – payout does not change as assets in trust go up and down – no upper or lower limit on percentage/annuity amount
  89. 89. Charitable Lead Unitrust• Irrevocable gift to Trust, paying a fixed percentage of assets to charity based on the value of those assets, as revalued annually – no upper or lower limit on percentage/annuity amount
  90. 90. “Zero-value” Non-Grantor CLAT• With a high enough payout rate, a low enough 7520 rate, and a long enough trust term, the actuarial value of the charitable interest will shelter the entire value of the asset transferred to the trust.• Trust can zero out for tax purposes while assets inside trust may actually grow!• “Can you beat the 7520 rate over the trust term?” If so, CLTs are attractive.
  91. 91. Zeroed out Non-Grantor CLT Donor CLAT Charity Heir• Donor give $1,000,000 to CLAT• $70,000 fixed to charity each year for 20 years• 7520 rate at 3% for this illustration• “Zeros out” transfer tax on that asset• At end of term, balance goes to Heir• If trust earns 8% heir gets $1,400,000 – all without transfer tax
  92. 92. Grantor-Retained CLT• A CLT in which the Donor retains an interest or power which results in the trust being treated as a “grantor trust”• With a grantor trust, income, deductions and other tax consequences flow back to the donor’s own tax return• Income tax benefits to donor when set up• But all income taxed back to grantor over trust term (“phantom income”)
  93. 93. Grantor CLT• “Phantom Income” and Remainder Value actually received by the beneficiaries are influenced by investment strategy and asset allocation.
  94. 94. Grantor-Retained CLT• If Donor dies prior to end of CLT term, possible “claw back” of initial Charitable Income Tax Deduction.
  95. 95. Grantor Charitable Lead Trust DONOR CHARITY CLTTransfer Assets Trust disburses at end ofto CLT term to grantor (this is one way to make it a grantor trust DONOR
  96. 96. Grantor Charitable Lead Trust Initial DONOR Income Tax CHARITY Charitable Deduction CLT Annual “Phantom” Income to donor on Trust income DONOR
  97. 97. Grantor Charitable Lead Trust DONOR CHARITY 5% CLAT 10 yrsTransfer$1,000,000cash to CLT DONOR
  98. 98. Grantor Charitable Lead Trust Income Tax Charitable DONOR Deduction: CHARITY $431,000 5% CLAT: 10 yrsAssumes 3% 7520 rate DONOR
  99. 99. Grantor Charitable Lead Trust DONOR CHARITY 5% CLAT: 10 yrs Annual Distribution to Charity: $50,000 DONOR
  100. 100. Grantor Charitable Lead Trust DONOR CHARITY 5% CLUT: 10 yrsRemainder Assets toDonor: Whatever theassets have grown to orshrunk to DONOR
  101. 101. Grantor CLT Investment Issues• Traditional “Diversified” Portfolio – Some Ordinary Income (rent, dividends, interest) earned each year – Some Gains (Long and Short Term) realized from time to time as portfolio is actively managed• All taxable receipts are taxed to Donor, whether paid out to charity or retained by CLT
  102. 102. Traditional Portfolio• Does not consider the tax effect of earnings, trades or other components of asset management that might impact the donor in a Grantor trust (“phantom income”)• Trust holdings not specifically designed to minimize effects of “phantom income”• May result in tax payments by donor which are not necessary in light of donor’s objectives
  103. 103. “Tax-Free” Portfolio?• All earnings of CLT tax-free, so donor gets no “Phantom Income”• Growth of corpus is minimal at best• If payout is greater than earnings, corpus will be distributed, reducing remainder value
  104. 104. CLT: Generation Skipping Transfer Tax• Comes up when the donor wants to make the trust go at termination to a beneficiary more than one generation down (e.g., grandchildren)• Subjects generation skipping transfers to an additional transfer tax to, in effect, make up for the asset not being taxed in the intervening estate• Rules differ for CLAT as opposed to CLUT – More favorable for CLUT
  105. 105. GSTT for CLUT• For Charitable Lead Unitrusts, a charitable exemption is allowed at inception in computing GST.• Meaning: GSTT implications are determined and controlled at funding date – client’s prefer this.
  106. 106. GSTT for CLAT• For CLAT a charitable GST exemption is NOT allowed at inception – Rather an “adjusted exemption” is allowed at termination – “Adjusted exemption” determined by increasing the exemption amount over the term of the trust at the 7520 rate in effect at creation of the trust• Makes it impossible to determine accurately the final GSTT consequences of a transfer to a Charitable Lead Annuity Trust – Donors dislike the uncertainty
  107. 107. Practical• GSTT rules are complex and beyond the scope of this course.• Recogize that: • A CLT for, say, grandkids is a red flag • Most likely a CLUT will be preferable, but leave that conversation to qualified counsel
  108. 108. “Private Foundation” Rules• CLT trust terms must prohibit: – Self-dealing – Excess business holdings – Jeopardy investments – Taxable expenditures• Note: These rules will be treated at greater length in the assignment on Foundations.
  109. 109. “Private Foundation” Rules• “Self Dealing” includes sale or exchange of property between trust and “disqualified person,” including Donor or Trustee.• Jeopardizing investments are risky investments that my jeopardize the trust
  110. 110. Private Foundation Rules• Excess business holdings and jeopardy investment restrictions not applicable if – Charitable interest of the CLT at inception is less than 60% of the aggregate fair market value of the trust assets at inception – And the CLT income interest is devoted to specified charitable purposes.• Note: This exception can be useful when seeking to fund a CLT with a closely held business interest
  111. 111. CLT Donor Profile• A client who wants to benefit charity• Client whose non-charitable remainder beneficiaries can afford to wait for property (BUT, think Irrevocable Life Insurance Trust as a temporary solution)• Client who can forego income from CLT assets for term of trust
  112. 112. CLT Donor Profiles• Client is making gifts to charity – Use CLT to make current gifts – Move assets dedicated to supporting current gifts from taxable estate and begin moving principal (and any net growth) to heirs today
  113. 113. Non-Grantor CLT Client Profiles• Substantial future estate tax problem• Assets which the client-donors – Do not need for current income production – Do not need to be able to sell or otherwise control for their own benefit• Most likely married candidates will have $7,000,000 or more of net worth
  114. 114. Non-Grantor CLT Prospect• Donor is hitting the AGI limits for annual gifts• Consider gifting to CLT an income producing asset.• Income from asset is 100% deductible to trust, but limited to a fraction of AGI in donor’s hands.• Net result: Donor need no longer realize income from the asset that donor cannot deduct as a gift.
  115. 115. Example• Client makes $60,000 annual gifts• Client has “dedicated” $1,000,000 of asset base PLUS its earnings to sustain this giving at 6% net return on assets• $1,000,000 is currently part of Client’s taxable estate• Move $1,000,000 to CLAT with 6% payout to sustain giving AND remove, or largely remove, assets from taxable estate
  116. 116. Design Strategies• Inter vivos (lifetime) term of years CLT: Setting up sooner is better than later – Assets pass to children at younger ages – Gets assets and future growth out of the estate – Allows lower distribution requirements since term can be longer (time until heirs “inherit”)
  117. 117. Design Strategies• CLT not income tax exempt – Therefore, always need tax efficient management (possible investment management selling point) – Best funding = high basis assets or cash – Can fund with low basis assets, but would need to develop “sell strategy” with asset manager since the gain is taxable to the trust in year of sale, and there may not be a sufficient offsetting charitable deduction
  118. 118. Design Strategies• Charitable Lead Trusts do not necessarily stand alone – CRT could provides source of replacement income lost to lead trust asset transfer – Wealth replacement insurance can provide interim liquidity and/or guaranteed inheritance for children who might have to wait for the CLT (particularly a testamentary CLT) to disburse
  119. 119. CLT and Foundation• Use payout from CLT to create and build foundation assets• Care should be taken in setting all this up to consult with qualified counsel (donor can’t have too much control over both CLT and Foundation.)
  120. 120. CLT versus Foundation• Client considering a foundation?• Maybe a CLT would do the same job better.• A CLT is donor-created grantmaking entity, but one that will eventually pour over to the heirs.• Whereas, a foundation never reverts to the family.
  121. 121. Issues• The ever changing taxation and legality of such strategies to displace and defer the final application of charitable dollars to community needs is one issue.• The other issue is how much good is done, when, for whom?
  122. 122. Where? When? How?• “Where would you like to make a difference in the world?”• “When? Now, later, or at death, or beyond death?”• “How? With that tools?”
  123. 123. CLT from Charity’s Perspective• A living lead trust can pump significant dollars to a charity for current programs.• Life insurance can replace the stream of payments when the trust term ends.
  124. 124. CLT from Heir’s Perspective• “A deferred inheritance trust.” – CLT at death for 20 years, say.• Yet, consider it in comparison to a Foundation – With a CLT assets do eventually go to the heirs, with a Foundation they never will – Again insurance can provide money at death, while the heir waits
  125. 125. CLT from Heir’s Perspective• The heir too may be philanthropic and civic minded.• A CLT like a Foundation can advance higher aspirations, and meet community needs, as well as providing all the social benefits of “beneficence.”
  126. 126. Not a Package Sale• “There has never been a better time for CLT’s” – True!• But a CLT is a tool or technique of an overall estate plan and financial plan• An advisor will “kill the deal,” unless consulted early about how the trust fits in the overall plan
  127. 127. Questions for Prospects• You have an excellent estate plan, I am sure. Are you still paying any estate tax?• Have you considered a Foundation? Would you be interested in an alternative in which your heirs can actually get the assets back often free of estate tax?
  128. 128. Questions for Prospects• As generous as you have been, do you sometimes hit the limits on what you can deduct? May I show you a tool that will allow you to give more in a tax advantaged way?
  129. 129. Questions for Prospects• I am sure you have an excellent estate plan. Are your advisors aware how idealistic and committed you are to giving? Would it be helpful if I were to meet with them to discuss options that can help you personally, help your heirs, reduce estate tax, and make a big difference for the causes you care about?
  130. 130. The Close• You do not “close” for a CLT• You close for a process that suits tools and techniques to client goals via an overall plan for self, family, and society• Having carefully understood the prospect’s goals, you often close for a meeting with advisors, or for permission to convene a team
  131. 131. Motivation Society FamilySelf
  132. 132. Impact• A CLT is a powerful tool for achieving a positive impact for heirs and for charity.• What is in it for the donor is knowing that his or her goals are accomplished with great tax efficiency.• Sell impact and the rest falls into place.
  133. 133. Donor Advised Funds• Hugely popular• Can be considered like family foundation for those of more modest means• Some of the largest donor advised fund complexes are offered by the nonprofit arm of such financial firms as Fidelity, Schwab, and Vanguard (and many others)• Have traditionally been offered by Community Foundations, Jewish Federation, and other nonprofits
  134. 134. Immediate Legacy™• A Patent Pending Process That – Generates an Immediate Donation to a Charity at No Net Cost to a Charitable Supporter – Provides the Charitable Supporter a Current Income Tax Deduction for the Donation Created A Non-Disclose Agreement is Required
  135. 135. The Four Quadrants of Wealth™ Assets Income Earmarked for Charity Retirement Assets Earmarked for Family
  136. 136. Insured Death Benefit $17,000 $500,000 At Annually Supporter’s DeathCharitable $500,000 Charitable $364,000 PersonalSupporter LLC Pension $22,500 $39,500 Annually for Annually Term of for Life of Loan Supporter Charity $136,000 IMMEDIATE DONATION
  137. 137. Flexibility of Immediate Legacy™ Immediate Donation NowImmediate Donation Now & Annual Donations
  138. 138. Insured Death Benefit $17,000 $500,000 At Annually Supporter’s DeathCharitable $500,000 Charitable $364,000 PersonalSupporter LLC Pension $22,500 $39,500 Annually for Annually Term of for Life of Loan Supporter Charity $136,000 IMMEDIATE DONATION
  139. 139. Insured Death Benefit $17,000 $500,000 At Annually Supporter’s DeathCharitable $500,000 Charitable $364,000 PersonalSupporter LLC Pension $22,500 $39,500 Annually for Annually Term of for Life of Loan SupporterAnnual Gift to Charity Charity $136,000 IMMEDIATE DONATION
  140. 140. Flexibility of Immediate Legacy™ Immediate Donation NowImmediate Donation Now & Annual Donations Immediate Donation Now Annual Donations Donation at Death
  141. 141. Insured Death Benefit $17,000 $500,000 At Annually Supporter’s Death Charitable $500,000 Charitable $364,000 Personal Supporter LLC Pension $22,500 $39,500 Annually for Life of Supporter$12,500To Deferred $10,000Gift of Annual Gift Charity $136,000 IMMEDIATE$365,000 to Charityof Life DONATIONInsurance
  142. 142. Immediate Legacy™ Compared toTraditional Ways of Giving
  143. 143. Charitable Remainder Trust Immediate LegacyTax Deduction for Donor? YES YESIncome Paid to Donor? YES YESImmediate Donation to Non-Profit? NO YESAll Assets Returned to Donor? NO YES
  144. 144. Charitable Gift Annuity Immediate LegacyTax Deduction for Donor? YES YESIncome Paid to Donor? YES YESImmediate Donation to Non-Profit? Maybe YESAll Assets Returned to Donor? NO YES
  145. 145. Immediate Legacy™ Case StudiesDonor:Age/Gender: 64 MaleEstimated Net Worth: $7 MillionMarital Status: MarriedSpouse: 60 FemaleCombined Income Tax Bracket: 33%(Federal and State)Asset Used for Immediate Legacy™: Cash AccountAsset Size: $1,000,000Interest Earned on Account: 3%Interest Amount: $30,000Tax on Interest: $10,000Net Income: $20,000
  146. 146. Insured Death Benefit $24,049 $1,000,000 At Annually Supporter’s DeathCharitable $1,000,000 Charitable $768,601 PersonalSupporter LLC Pension $40,000 $64,049 Annually for Annually Term of for Life of Loan Supporter Charity $231,399 IMMEDIATE DONATION
  147. 147. Before AfterIncome from Asset $30,000 $40,000Tax on Income @ 33% $10,000 $5,333Net Income $20,000 $34,667Income from the Immediate Legacy™ Program is Tax-Advantaged Due to Something Called a Tax-Exclusion Ratio. ATax-Exclusion Ratio Provides the Income Recipient Tax-Advantaged Income for His or Her Statistical Life Expectancy*.In this case, assuming a 33% combined tax bracket, a taxableequivalent yield of 5.17%, rather than the 4% stated rate.*Should the income recipient live to his/her statistical life expectancy, the tax exclusionratio ceases.
  148. 148. Additional Potential Tax Benefits: Charitable Donation $231,399 Tax Savings @ 33% $76,362*In This Example, The Supporter Receives Greater Net Income onthe Asset; All the Money Used in the Process Will Be Returned tothe Supporter’s Family AND the Supporter Receives $76,362 inIncome Tax Savings, Effectively Getting Paid to Execute theStrategy!*Cash Charitable Donations Are Deductible Up to 50% of Adjusted Gross Income. UnusedDeductions in a Current Tax Year Can Be Utilized in up to 5 Subsequent Tax Years for aTotal of 6 Tax Years.
  149. 149. Immediate Legacy™ Guidelines: Supporters Aged 45-85 (Strategy designs have been completed on supporters as young as age 28) Male or Female 75% Success Rate 15% - 35% of Loan Amount Provides an Immediate Donation to Charity
  150. 150. Potential Opportunity: Converting Future Bequests Into Immediate Donations
  151. 151. Donor Advised Funds• Donor makes irrevocable contribution to a non-profit organization that administers the fund• Receive immediate income tax deduction – Qualify for public charity deductions• Donor recommends charitable grants based on his/her timetable• Some charities will allow named beneficiaries may assume advisory role after death, if the charity allows this
  152. 152. Donor Advised Funds• Can be opened in modest amounts, like $10,000• As easy to establish as a mutual fund• Some organizations will accept appreciated property, or even business interests, under certain circumstances
  153. 153. DAF Uses• “Training wheels” for a future Foundation• Good way to engage children in giving• Can be used in high income years to set money aside for future gifts
  154. 154. DAF Uses• A small foundation may prove cumbersome for a family• They may decide to roll the foundation into a DAF• Foundations require public disclosure of grants, but with a DAF giving can be anonymous (c.f., gifts to controversial causes)
  155. 155. “Conduit” or “Pass Through”• A private foundations that by its own terms must distribute each year all its net assets for charitable purposes• May pay reasonable administrative expenses from assets• Receives “public” tax treatment for income tax purposes
  156. 156. Community Foundations• Serve a philanthropic hub for the community, connecting donors and nonprofits• Have their own endowments• Also hold DAFs and other segregated funds• Are staffed to “reach out” to advisors, as well as donors and nonprofits
  157. 157. Community Foundations• Have deep local knowledge of needs and causes• Can connect donors to others interested in same causes• Are philanthropic educators and motivators• Nearly 700 CFs in the US
  158. 158. Community Foundations• CFs may get 40-80% of funds from advisor referrals• Do advisors, CFs, and DAF providers like Fidelity, Schwab and Vanguard compete for assets under management and client control? – Yes, but also collaborate to raise the field – CAPs works throughout this sector
  159. 159. Which Tool is Right?• What assets are being used?• How much will go into the tool?• How much control is enough?• How important is privacy?• How important is perpetuity?
  160. 160. Which Tool is Right?• Planning tolerance• Fee tolerance• Time required – “This Foundation is more trouble than a pet,” as one donor said.• Prestige?
  161. 161. Resources to Research• Council on Foundations• Foundation Center of Atlanta• Association of Small Foundation• National Network of Consultants to Grant-makers• Regional Association of Grantmakers• Local Community Foundation (CFGA)• Foundation Source• Attorney in your area specializing in exempt organizations and estate planning
  162. 162. Passion• The depth of your commitment to “social good” is a common bond with well connected leaders• As one advisor said, “In philanthropic advisory work you meet the best people in their best moments.”• The tools and the plans are ways to amplify money to best effect
  163. 163. Types of Private Foundations• Private Family Foundation• Supporting Organization• Private Operating Foundation• “Conduit” or “Pass-Through” Foundation
  164. 164. Private Family Foundation• A private foundation that makes grants rather than provide services to the public• Funded by, governed by, and usually named after a particular individual or a family
  165. 165. Private Foundation• Gifts to PFs are deductible, – appreciated publicly traded securities at FMV; – Other appreciated property at basis• Deduction subject to 30% AGI limitation for cash and 20% limitation for long term capital gain property
  166. 166. Private Foundations• Popular with affluent families – Maximum flexibility and control over assets – Means to instill values in family members• Restricted deduction limits – But consider a Supporting Organization for higher deductibility and for various “problem” assets• Stringent reporting requirements
  167. 167. Private Foundation• Created in trust or corporate form• Governed and managed by trustees or directors• Regulated by states and by federal government
  168. 168. Private Foundations• Generally make grants to 501(c)(3) organizations• 5% granted out each year, including administrative costs
  169. 169. Private Foundations• IRS and State Attorney General or Secretary of State, have jurisdiction• Policies a foundation should adopt include – Conflict of interest – Investment policy – Travel and expense policy – Record retention policy
  170. 170. Private Foundations• Should have a succession plan• Regular meetings of its Board, with record of Board minutes• Should have accounting, recordkeeping, and bookkeeping systems• Solid financial controls• 990-PF is a disclosure form filed annually and publicly available
  171. 171. Private Foundation Grant-making• Formal or informal• Best to have some focus so that grant requests can be limited to that focus• Grant guidelines can be published• Recipients should agree with grantmaker on “metrics” and reporting• Impact becomes an issue – “Have we accomplished anything in the world?”
  172. 172. Private Foundations• Often called Family Foundations – Can bring family together in common purpose, or give them something new to fight about – Instill traditions of giving – Involve children early – Open the eyes of succeeding generations about community needs and how others live
  173. 173. Private Foundations• Council on Foundations, Association of Small Foundations, and Regional Associations of Grant-makers, among others, can bring families with foundations into a “flotilla” of like minded funders.
  174. 174. The Private Foundation Rules• Stemmed abuses• Make very hard to use a foundation to hold small business assets or to have dealings back and forth between the donor, the donor family, donor controlled entities, and the foundation• Complex area of the law• Qualified counsel is advised when a situation touches on these rules
  175. 175. Private Foundation Rules• Section 4940: Excise Tax• Section 4941: Self-Dealing Rules• Section 4942: Required Distributions• Section 4943: Excess Business Holdings• Section 4944: Jeopardy Investments• Section 4945: Taxable Expenditures
  176. 176. Requirements for Income Tax Deduction1. Must be voluntary2. Made to an eligible charity3. Without consideration or benefit to donorNote: Above is the general rule. The majority of planned gifts are exceptions to #3.
  177. 177. Completed Gift• To be deducted a gift must be “complete” – No strings attached – No ability to revoke – Nothing of value coming back to the donor (“quid pro quo”) – No deduction for gift of a partial interest.• These are the general rules. For quid pro quo gifts and gifts of a partial interest certain special rules and exceptions apply.
  178. 178. Eligible Charities for Income Tax Deduction• The Federal Government , a state, the District of Columbia, a political subdivision, but only if used for a public purpose• An entity organized exclusively for religious, charitable, scientific, educational or other approved civic purposes• A Veterans organization• A domestic fraternal order, such as Shriners• Certain cemetery companies
  179. 179. Pub. 78• IRS publication listing eligible charities• Can be accessed at
  180. 180. Gifts to Individuals• Gifts directly to individuals are not deductible.• Must go via an eligible charity• The charity must have control
  181. 181. Gift of Partial Interest• Give it all, without consideration, or no deduction, unless it falls under an exception: – CRTs, CLTs, Pooled Income Funds, Gift Annuities, Life Estates, Bargain Sales are among the exceptions – When the donor does get such things as a dinner or sports tickets back, the value received reduces the deduction.
  182. 182. Deduction Limitations• Note: These rules are complex, but are the stock and trade of anyone doing philanthropic advising.• It is best to memorize them, but the CAP should in any case keeps the rules handy.• An excellent chart is found in Charitable Strategies, Appendix 3 A.
  183. 183. Factors in Computing Deduction• The type of property donated• The type of charity receiving the gift• The fair market value of the gifted property• The value of any goods or services received in return for the gift
  184. 184. Limitations• In addition to the rules as to computing the deduction, another set of rules determine how much of the deduction a client can take in a given year. Those rules turn on the donor’s “contribution base,” which is generally, Adjusted Gross Income.• Thus, a gift may be “deductible,” yet the donor may not be able to take it, because it hits the donor’s deduction limit for that year.
  185. 185. Type of Property Given• Generally, gifts are deductible at fair market value, but there are exceptions.• On the following slides are items deducted at fair market value reduced by unrecognized gain.
  186. 186. Ordinary Income Property• Inventory, short term capital gain property, life insurance, deferred annuities, works of art or literature created by the taxpayer• These are among the items that can be deducted only at Fair Market Value minus any unrecognized gain.
  187. 187. Tangible Personal Property• Furniture, collectibles, jewelry, equipment, works of art, etc.• These are generally deductible only at FMV minus gain, unless they will be used by the charity for its exempt purpose.
  188. 188. “Applicable Property”• This is tangible personal property that seems to qualify for a FMV deduction since it will, apparently, be used by the charity for an exempt purpose, but is in fact not so used.• When the deduction claimed is more than $5,000, and the charity sells the property within the tax year, the property is considered applicable property and deduction is for basis.
  189. 189. “Applicable Property”• When the property given for use by the charity in its exempt purpose is sold by the charity within 3 years, the difference between the deduction for FMV and for basis is recaptured by the tax payer….• Unless, the charity has given the taxpayer a good faith certification at the time of the gift that the property will be retained and used for an exempt purpose.
  190. 190. Appreciated Property to Private Foundation• Gifts of appreciated property to private foundations (other than operating foundations) are deductible at basis unless the property is “qualified appreciated property.”• Qualified appreciated property is property traded on a public exchange for which quotations are generally available.
  191. 191. Review• What is the general rule? – Deduction for FMV• What are the exceptions? – Ordinary income property – Tangible personal property, unless used by charity for exempt purpose – “Applicable property” – Capital gain property, other than “qualified appreciated property,” given to a Private Foundation
  192. 192. Quid Pro Quo Rule• Gift made and donor gets goods or services in return. Only the amount of the gift in excess of the quid pro quo is deductible.
  193. 193. Quid Pro Quo• Incidental (insignificant) benefit is ignored• Token items, like coffee mug or t shirt can be ignored, when the gift is $48 or more.• Token items for 2010 can be ignored if valued at the lesser of 2% of the gift or $96.• Intangible religious benefit can be ignored• Membership benefits offered in exchange for a gift of $75 or less can be ignored if the rights to use them can be exercised frequently
  194. 194. Documentation• For value of the quid pro quo, donor can rely on the charity’s own good faith estimate of the value, unless the donor knows the estimate is false.
  195. 195. Gift of Patents• Donor gives patent or intellectual property. – Initial deduction is lesser of basis or FMV. – In succeeding years, donor is allowed deduction for a portion of the income the charity receives from the property.
  196. 196. Limitations Based on Income• Say the gift is deductible: – Whether the deduction can actually be used, or how much of it can actually be used, will depend on donor’s Adjusted Gross Income (AGI) – And it will depend on the type of charity to which the gift is given. – And it will depend on the type of property given to that type of charity.
  197. 197. Non-Itemizers• Note that charitable gifts are itemized deductions, but not all donors itemize.
  198. 198. Terminology to Memorize• 50% charity – a public charity, like a college, United Way, religious organization, hospital, and also a private operating foundation.• 30% charity – a private foundation, and also veterans orgs, certain cemetery associations, and fraternal orgs.
  199. 199. Percentage Limits to Memorize• 50% orgs – gifts of cash are deductible up to a limit of 50% of AGI.• 30% orgs – Gifts of cash are deductible up to 30% of AGI.
  200. 200. The AGI LimitsType of Property Gifted To 50% charity To 30% charityCash 50% 30%Ordinary Income Property 50% based on lesser 30% based on lesser of of basis or FMV basis or FMVLong term Capital Gain 30% 20%PropertyTangible Property Unrelated to 50% 30%Tax-Exempt Purpose Note: Unused deduction can be carried forward and used over five more years
  201. 201. Step Down Election• An election is available whereby donor can reduce the amount of the deduction for long term capital gain property to basis.• If the election is taken, the deduction limit is 50% of AGI, rather than 30%.• Election must apply to all to such property gifted in a tax year.
  202. 202. Thought Process with Donors• “Where will you make the gift?”• “What will you give?”• “What is your Adjusted Gross Income?”• “What others gifts have you made this year?”• “Has your accountant said you have hit your AGI charitable deduction limits?”• “Per your accountant, do you have charitable deduction carry forwards from prior years?”
  203. 203. Your Role• You are not a CPA!• Be should be familiar with the rules, but CPA or tax attorney should apply rules to given case.• Avoid making simple statements like, “Your deduction is…; your tax savings is….”• Care should be taken with planned gift software that shows the dollar value of deductions.
  204. 204. 8283 and 8282• For noncash contributions• These forms, one from donor, and one from the charity, are used by the IRS as a check and balance.• They are designed to discourage donors and charities from inflating the deduction.
  205. 205. 8283 Part A• Filed by taxpayer for gifts of noncash property of $500 or more.• Form asks for FMV, cost basis, how and when acquired, description of property, and how valued.• If appraisal was used, signed appraisal is attached.• Failure to file results in deduction being disallowed.
  206. 206. 8283 Part B• Noncash gifts over $5,000 generally require Part B of 8283. (Unless the gift is of marketable public securities.)• Part B requires a qualified appraisal by a qualified appraiser.• Note: For gifts of closely held stock the threshold is $10,000.• Note: Qualified appraisals are often costly.
  207. 207. Appraisals• Qualified appraisers are an important player on the advanced planning team.• Development pros whose clients have noncash assets, such as closely held business interests, will want to cultivate a network of qualified appraisers.• Significant penalties apply to substantial or gross valuation misstatements
  208. 208. Gifts of Art• For gifts of art, valued at $50,000 or more, the tax payer can ask the IRS to provide a statement of value.• A user fee is charged for this, $2,500 for up to three items.
  209. 209. Deduction for Federal Transfer Tax• Similar to, but not identical to, income tax• Generally, a death time transfer to an eligible charity is deductible for estate tax purposes, without an upper limit.• Gift must be made by the decedent to eligible charities.
  210. 210. Eligible Charities• Note that income tax deduction is generally not available for gifts to organizations outside the US.• However, such gifts are permitted for estate tax purposes.
  211. 211. “Made by Decedent”• To qualify for the estate tax deduction, the gift must be made by the decedent through the appropriate legal documents.• If the gift is left to the executor’s discretion, or occurs by operation of the state intestacy laws, the deduction is not available.
  212. 212. State Law• State laws differ on how charitable gifts are treated at death.
  213. 213. Best Practices of Asking the Philanthropic Question• Whatever your seat – for big cases lead with an open-ended question• As opposed to what? – A donor pyramid – A case statement – A pitch – A fact finder – A gift illustration
  214. 214. Your Seat at the Table PLANCON SF EE LR LE ADVISE Scott and Todd Fithian, The Right Side of the Table
  215. 215. The Planning Horizon Why?________________________ How?
  216. 216. Open Ended Prompts• If your family had a • When you were crest what would be the younger were there motto? things you wanted to• What keeps you awake accomplish in life you at night? have not yet done?• What would you like to • How might you get back change or preserve in to that while you have the world? time?
  217. 217. More Probing Questions• Where do you want to • Do you serve on any have an impact? Boards?• What nonprofits have • What gifts have given meant most to you? you the most• Where do you satisfaction? volunteer? • Would you give more if• Do you think it is you knew you could important for kids to afford it? volunteer? • What is next for you?
  218. 218. Discernment Process• Open ended prompt • Confirmation• Encouragement – What I hear you saying – Tell me more is…. – Interesting…. – So, you are trying to….? – And then what? • Transition towards – So, how did that feel? solution – Are you satisfied with – Would it help if? that?
  219. 219. Listen for Story • What plan unites the client’s origin, present I was I am state, and desired end? • What makes a happyI wish I I wish to ending for this life? was be • Legacy, posterity, impact I will be
  220. 220. Summary Close for Process• Let me play back what I think I have heard….• Your situation is….• Your goals are….• Your concerns are…• We have agreed that….it would help if…• Our next steps are….
  221. 221. • Goals and objectivesDiscovery/AgreementMemo • Current situationBest practice is a follow-up memo • Issues and considerations • Options to discuss with Advisors • Next steps
  222. 222. • Clients need and want a human touch.Above The Line Planning • Finding client goals is key to success • Do not assume the attorney has done this • Huge opportunity to reopen cases with high net worth prospects
  223. 223. • Begin with exploration ofProcess is key goals, dreams, aspirations, areas of interest as to impact • Touch gently on tools • Then go into the process appropriate to your seat at the table • Detailed explanation of tools comes later
  224. 224. 12 ElementsVia Tracy Gary
  225. 225. WHERE WILL YOUR LIFE HAVE IMPACT? Impact? How? • On self • Plans • Family • Tools • Community • Gifts Why? • What kind of person do you want to be? • In what kind of world?
  226. 226. THE WORLD WE WANT
  227. 227. PETER’S QUESTIONS What is your vision of a better world? What conditions are needed to realize it? What are the obstacles? What parts of the vision are realistic and what ideas, strategies and plans can make it so?
  228. 228. LOGIC MODELCausal chain connecting input with Lastingresults Impact Outcome output Input
  229. 229. Peter Frumkin
  230. 230. FRUMKIN’S PRISM
  231. 231. THEORY OF SOCIAL CHANGEWilliam Schambra At Bradley Center for Philanthropy and Civil Society • Conservative • Grassroots • Community centered • Uneasy with engineered solutions from either government or big foundations
  232. 232. The Philanthropic Learning 1. Give passively when askedCurve via ThePhilanthropic Initiative 2. Begin to investigateMany financial services clients are“proto-philanthropists,” who are not charities and programsyet on the curve at all, or only givingsmall amounts passively. 3. Fully engaged, an expertHow many years or generations beforethe client reaches stage three? in an issue area,Can we shorten the curve? collaborating with others to move the needle
  233. 233. 1. Set, prioritize, andCPA Planning Process quantify goalsFrom Charitable Strategies 2. Gather dataWritten by and for CPAs 3. Develop strategyHow does your process differ? 4. Communicate strategyWhat do you add?How do you “team up”? 5. Implement strategy and compliance procedures
  234. 234. The Nonprofit ConnectionClient’s Personal asset Charitable tool Nonprofit Project, program Social output and impact
  235. 235. From Client money and goals to impact – Your role in the process? Impact? How? • On self • Plans • Family • Tools • Community • Gifts Why? • What kind of person do you want to be? • In what kind of world? • With what commitment of assets?
  236. 236. • Estate plannerTeam • Financial planner •Work with others CPAOr they will work against you • JDThe bigger the case, the more team-intensive • Insurance • Investments • Gift Planner
  237. 237. Sources and References1. “The Right Side of the Table: Where Do You Sit In The Minds of The Affluent? “ by Scott Fithian and Todd Fithian2. “Wealth in Families” by Charles Collier3. “Inspired Philanthropy” by Tracy Gary w/ Nancy Adess4. Phil Cubeta, H. King McGlaughon, Jr. – current and form holders of Sallie and Willam Wallace Chair in Philanthropy – American College5. Chartered Advisor in Philanthropy course material – Richard D. Irvin Graduate School - The American College, Bryn Mawr. PA6. Immediate LegacyTM -GTBK Marketing LLC, Charitable Concepts, LLC,Planned Giving Design Center – www.pgdc.comCommunity Foundation of Greater Atlanta – www.cfgreateratlanta.orgAmerican Council on Gift Annuities - www.acga-web.orgPartnership on Philanthropic Planning -