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Gifts of Estates and Assets

Leadership ConferenceSeptember 26, 2012

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Intergenerational Wealth Transfer

$44 trillion to $135 trillion dollars

in the next 50 years

$6 trillion to $25 trillion dollars

in charitable bequests alone

Intergenerational Wealth Transfer

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In Minnesota more than $47.9 billion will transfer from one generation to the next

over the 20 years, 2011-2030

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Charitable Giving Marketplace:Who Makes Charitable Gifts?

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Where the money is

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Charitable Giving Marketplace:Who Receives Charitable Gifts?

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Everyone Can Make An Estate Gift

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Fundraising StrategiesAnnual Giving Special or Major Gifts Planned Giving

Donor’s Source of Funds for Contribution

Primarily income or cash on hand

Contribute (or sell) assets or make multi-year pledges

Estate Wealth

Charity’s Use of Contribution

On-going operations

Special projects or unique needs

Unrestricted, Capital and Endowment

Target Audience Any and all active constituents

Prospects with linkages, interest and liability

Anyone who might be interested in the cause

Target Audience Annual solicitation Opportunistic strategy seeks

Continuous education, long term cultivation

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A Generation-Based Approach to Giving

A

Under Age 50

B

Aged 50 – 70

C

Over Age 70

All donors find themselves at some stage of life…

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…all donors have certain assets and income…

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Highest Wealth & Income Range

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Average Wealth & Income Range

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Below Average Means

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…all donors find a “home”

Younger Middle-Aged Older

Wealthy A1 B1 C1

Moderate Means

A2 B2 C2

Limited Means

A3 B3 C3

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Common Donor Concerns

• Dying too soon• Living too long• Illness or loss• Disability

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Gift Planning Solutions

A. Benefits to Charity in Near Term

B. Benefits to Charity Deferred

C. Full Benefit to Charity

Outright Gifts of

Cash and

Appreciated Assets

Bequests via Wills, Trusts, Life Insurance & Retirement Plans

D. Split Benefit to Charity

Charitable Lead Trusts Term of years, CRT Assignment of

Income

Charitable Remainder Trusts, Charitable Gift Annuities, & Pooled

Income Funds

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Charitable Gift Planning Vehicles-50 YOUNGER 50-70 MIDDLE-AGED 70+ OLDER

WEALTHY

A1Outright gifts

B1Charitable Remainder Trust for Term of Years

C1Bequests, Charitable Trusts for Life,Charitable Lead Trusts

MODERATE MEANS

A2Outright gifts

B2Charitable Trusts for Life, Pooled Income Funds

C2Bequests, Charitable Trusts for Life, Charitable Gift Annuities,Retirement Plans

LIMITED MEANS

A3Outright gifts

B3Outright gifts, Bequests

C3Bequests, Charitable Gift Annuities, Retirement Plans, Life Insurance

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When Assets are Often Gifted

During Lifetime:• Cash• Stock – publicly traded

or closely held• Mutual Funds• Real Estate• Life Insurance• Crops

At Death:• Retirement Plan Assets• Bonds• Life Insurance

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Types of Planned Gifts

• Bequests • Beneficiary Designations• Life Income Gifts

• Gift Annuities and Trusts• Gifts of Life Insurance• Retained Life Estates

• Real Estate

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Life Income Gifts

Simple definition:

“An asset in exchange for an income”

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Life Income Gifts

Gift Amount Fixed Payment Variable Payment

(Inflation)

$10,000 to

$100,000

Charitable Gift Annuity

$100,000 and up Charitable Remainder Annuity Trust

Charitable Remainder Unitrust

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Charitable Gift Annuity

• Contractual promise to pay• Payments are fixed at the time of the gift• Usually provides tax-free income• Two types, payments can start now or later

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Basic Concept:

“The right to hold an asset can be separated from the right to receive

income from the asset.”

Charitable Remainder Trusts

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Charitable Remainder Trusts

• Common Elements• Irrevocable gift• Established either inter vivos or testamentary • Income payments are made at least annually• The remainder beneficiary must be a charity• Income for lifetime or term of years

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Charitable Remainder Unitrusts

• Variable income stream• Additional contributions can be made• Minimum payout of 5%• 10% Rule• 4 types of unitrusts

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Charitable Remainder Annuity Trusts

• Fixed income stream• Cannot make additional contributions• 10% Rule

• Charitable remainder• The 5% Probability Test

• Corpus exhaustion

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Retained Life Estate

• Donate home to charity, but retain the right to live in it

• Charitable deduction in the year the gift is made

• Donor is responsible for maintenance, taxes and insurance

• Property maintains homestead status

Case Studies

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Donor Profile #1

“I want to make a gift, but I can’t afford to do so now.”

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Solution: Estate Gift

• Charitable bequest or• Beneficiary designation of

• A will or trust• life insurance or • retirement plan assets

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Donor Profile #2

“I have enough assets and I want to see my gift at work.”

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Solution: Outright GiftCash vs. Stock GiftGift of: Cash Stock

Contribution deduction

$10,000 $10,000

Income taxes saved (28%)

$ 2,800 $ 2,800

Capital gain taxes saved (15%)

$ 0 $ 1,200

After tax cost of gift $ 7,200 $ 6,000

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Donor Profile #3Donor Profile #3

“I want to make a gift, but I really could use the income.”

• Donor Age 80

• $10,000 cash

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Solution: Charitable Gift Annuity

Donor Remainder to

charity $8,200

$10,000 Cash

6.8% 6.8% Charitable Charitable

Gift Gift AnnuityAnnuity

Income tax deduction$4,607

Annual Income$680

CharityCharity

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Donor Profile #4

• Husband & wife, ages 70, 70• $100,000 in appreciated stock• $10,000 cost basis• Currently receives 2% dividend• Would like more income

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Solution: Charitable Remainder Unitrust

Donor Remainder to

charity $149,729

$100,000 Property$ 10,000 Basis

5% 5% UnitrustUnitrust

Income tax deduction$40,825

Gains not taxed$90,000

First Year Income$5,000

CharityCharity

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Solution: Charitable Remainder Unitrust

5% Charitable Unitrust

Gross Principal $100,000

Net Principal $100,000

Charitable Deduction $40,825

Total Before-Tax Benefit to Income Recipients

$133,053

Donor Principal $0

Benefit to Charity $149,729

Total Benefit $323,607

Most Important FactorMost Important Factor

• When making a charitable gift, donors rank When making a charitable gift, donors rank the following factors in order of importance: the following factors in order of importance:

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Thank You!

Your thoughts?