2014 annual professional advisor continuing education event

Case Studies in Charitable Gift Planning through Life Stages - Pragmatic Options for

Your Clients

October 28, 2014

Central New York Community Foundation 315-422-9538 www.cnycf.org

Where the Smart Money Gives.

Gay M. Pomeroy, Esq. 101 South Salina Street, Suite 600, Syracuse, NY 315-474-7571 ∙ www.mackenziehughes.com

Susan Hansen, CFP, CLU, AIF, AEP, President 315-637-5153 ∙ [email protected]

Madelyn Hornstein, CPA, CEO 443 North Franklin Street, Suite 100 Syracuse, NY 13204 315-471-9171 ∙ www.dbbllc.com

Lee M. Gatta, CLU, CLTC, AEP, ChFC 5786 Widewaters Parkway Dewitt, NY 13214 315-350-2460 ∙ [email protected] Charlotte G. Crandall, Chapter Executive 315-474-6775 ∙ [email protected]

gold sponsors

continuing education sponsors

Michael Miller, CFA, Managing Director 750 Third Avenue, 20th Floor New York, NY 10017 212-218-4900 ∙ www.colonialconsulting.com

Christine Woodcock Dettor, Esq. One Lincoln Center, Suite 900, Syracuse, NY 315-701-6351 ∙ www.bhlawpllc.com

Kenneth J. Entenmann, CFA, Chief Investment Officer 120 Madison Street, Syracuse, NY 315-475-5891 ∙ [email protected]

Estate Planning Council of Central New York

Charlotte G. Crandall, Council Executive 606 State Tower Building, 109 S. Warren Street Syracuse, NY 13202 315-474-6775 ∙ [email protected]

Bettina Lipphardt, CPA, CIA 115 Solar Street, Suite 100, Syracuse 13204 315-214-7575 ∙ [email protected]

Thank you to our sponsors for making this program possible!



October 28, 2014 Dear Advisor, Gift planning is a broad topic that can have significant benefits for your charitable clients. Further, the options for planning change as your clients progress through their lives. The idea of addressing gift planning through life stages was one that we thought would help provide structure to your thought process as you work with clients. Our presentation today was created to have a nationally recognized gift planner, Pamela Jones Davidson, take her experience and illustrate using case studies how to make charitable planning work for your clients in any life stage. The Community Foundation’s staff is available to be a part of your team whenever charitable planning is on the list of topics for your clients. This is true even in situations where we are not going to be a part of the solution. Of course, we are proud of the fact that our mission and purpose offers the flexibility to accomplish a wide spectrum of charitable goals. Whether we are helping a client to structure a planned gift for the benefit of our community, or simplifying their current giving through a donor advised fund, we will partner with you to leave your clients feeling happy with the outcome of their planning process. The best way to find out if the Community Foundation can support you in accomplishing your clients’ goals is to ask. We are available when needed to help find the right giving option for your client’s particular situation – be it legal, financial or other. We hope that you will come to think of us as your ‘charitable back office’, freeing you to focus on your area of core competency. We have a wealth of written materials that you can use when working with clients. Additionally, we are also available to meet face-to-face with you individually or including your client. Please contact Tom Griffith, Gift Planning Officer, at 315-883-5544 or [email protected] with questions or to schedule a meeting. Thank you for joining us this morning. I hope we have an opportunity to work together in the future. Sincerely, Peter A. Dunn President & CEO



Agenda

7:30 am: Registration

8:00 am: Welcome and Introductions

8:10 am: Presentation by Pamela Jones Davidson, J.D.

9:50 am: Questions & Answers



Pamela Jones Davidson, J.D. Pamela Jones Davidson, J.D., has been a nationally recognized speaker in charitable gift planning for almost 25 years. She is President of Davidson Gift Design, in Bloomington, Indiana, a consulting firm specializing in gift planning, planned giving program design and implementation, and training. From 1985 through 1996, she was with Indiana University Foundation, leaving that organization as its Executive Director of Planned Giving and Associate Counsel. Ms. Davidson received her undergraduate degree from Indiana University in 1975, and graduated magna cum laude from the Indiana University School of Law at Indianapolis in 1979. She has been an examiner in the Estate and Gift Tax Division of the Internal Revenue Service, and practiced law with an Indianapolis law firm before joining the nonprofit sector in 1985. Ms. Davidson was the 1999 President of the National Committee on Planned Giving (now, PPP) after serving on its board in various capacities for six years. As a past president, she is a member and current Chair of its Ethics Committee. She serves on the Editorial Board of the Planned Giving Design Center. Ms. Davidson is a past board member and treasurer of the Indiana Chapter of the National Society of Fund Raising Executives (now, AFP), and a past board member and president of the Planned Giving Group of Indiana. She serves on the Community Advisory Boards of both of her local public radio and television stations, and on the board and past president of Middle Way House, her community’s nationally recognized women’s shelter.


What is a Community Foundation?

• A tax exempt public charity

• Receives, manages and distributes charitable funds

• A collection of permanent charitable funds reflecting numerous purposes and philanthropic goals

• Through its Community Funds, a grantmaking foundation having impact on local needs, concerns and issues

• A convener and resource for local nonprofits

• A resource for personal and family philanthropic planning and complex charitable gift plans


Discussing Philanthropy With Your Clients As a professional advisor, you earn the respect of your clients in large part

by your willingness to discuss delicate topics and to help clients reach important decisions. A client who knows how to use professional advisors to their fullest will expect them to have independent viewpoints and information about the world that is beyond the client’s own knowledge.

Today, philanthropy can be an integral part of a client’s financial and

family goals. Much of the growth of community-based philanthropy is due to the efforts of professionals like you suggesting philanthropy as part of the tax and estate planning strategy.

The Central New York Community Foundation recognizes the additional

time necessary to develop in-depth conversations about charitable giving. We hope to provide valuable opportunities for you to help you solve problems for your clients. This morning’s presentation is one such opportunity.

How do you, the professional, initiate the topic of philanthropy with

your clients? Think about questions such as these when discussion their goals.

Beyond family and business, what is important to you?

What does giving mean to you?

What do you want your philanthropy to say about you? Your family?

Which volunteer experiences have been most rewarding to you?


Discussing Philanthropy With Your Clients (cont.)

What options does the Central New York Community Foundation offer your clients? We offer a variety of options for permanently endowed funds that provide perpetual support for your community or temporary funds that address needs of immediate interest to your clients. Community Fund: Responds to the ever changing needs of the community Fields of Interest Fund: Supports particular causes such as health, human

services, education or the arts Designated Fund: Allows donors to identify specific grants for not-for-profit

organizations Donor-Advised Fund: Offers participation in the grant process by allowing

donor suggestions of grants for not-for-profit organizations Memorial Fund: Becomes a permanent living memorial to a special person Scholarship Fund: Assists students in a specified area of study or at a particular

school, college or university.

How can these funds be established? Current Gifts: Deferred Gifts: Cash Bequest Under Will Appreciated Securities Pooled Income Fund Life Insurance Policies Charitable Remainder Trust Closely held Stock Charitable Gift Annuity Corporate Giving Programs Life Insurance Real Estate Charitable Lead Trust

The Central New York Community Foundation is here to serve the charitable giving

and estate planning needs of your clients. For assistance call Thomas Griffith, Gift Planning Officer at (315) 422-9538 or visit our web site at www.cnycf.org/advisor.


Ten Reasons To Partner with the Community Foundation

ONE We enable you to broaden your practice by building on our philanthropic

expertise. TWO We provide highly personalized service tailored to each individual's charitable

and financial interests. THREE We are a local organization with deep roots in the community. FOUR Our professional program staff's knowledge on community issues and needs is

available to donors on request. FIVE Our donor-advised funds help people invest in the charities they already care

about, and learn about new causes to invest in. SIX We accept a wide variety of assets, and can facilitate even the most complex

forms of giving. SEVEN We offer maximum tax advantage under state and federal law. EIGHT We multiply the impact of gift dollars by pooling them with other gifts and

grants. NINE We offer permanence to donors, through endowment funds and multi-

generational involvement. TEN We are community leaders, convening agencies and coordinating resources to

create positive change.


Typical Community Foundation Clients are:

Ages 45-75 • Single or Married • Facing Tax Consequences or Capital Gains

– Sale of Business – Inheritance – Investment Appreciation

• Civically Engaged; Starting to be or Has Been on NPO Boards

• Business Owners Wanting to Give Back to Community • Entrepreneurial Approach to Giving • Anonymity a Possible Concern

Ages 70 and Up • Single or Married • No Heirs, Children are Comfortable or Children are

Disengaged • Civically Engaged; Been on Many NPO Boards • Charitable Intent • Perhaps not Self-Perceived as “Wealthy”, “Millionaire

Next Door” • Desire to Sustain Long Term Charitable Interests • Linkage to Estate Planning Conversations


CASE STUDIES IN GIFT PLANNING THROUGH LIFE STAGES – PRAGMATIC

GIFT OPTIONS FOR YOUR CLIENTS

October 28, 2014

Pamela J. Davidson, J.D.Davidson Gift DesignBloomington, Indiana

LIFE STAGESIN CHARITABLE GIFT PLANNING

• As donors grow in their charitable giving, themethods and benefits for them can change.

• As we examine the different life stages we willconsider these differences.

• Before we get into the case studies, let’s brieflyreview the benefits and methods.

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DONOR BENEFITSIN CHARITABLE GIFT PLANNING

• Personal satisfaction– The joy and pleasure of becoming a philanthropist for the

donor’s favored charities,– Leaving a legacy at a level often greater than they thought

imaginable

• Income Tax Savings– Reduced income tax, beneficial during life– The avoidance of additional tax on long-term capital gains

when use appreciated asset– Income tax deduction with retained life estate, of personal

residence, vacation home or farm

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• Gift and Estate Tax Savings– Through lifetime charitable gifts and testamentary

provisions– Significant estate tax savings from charitable income plans

where donor and spouse are the only income beneficiaries

• Increased lifetime income– Charitable Gift Annuity, Charitable Remainder Trust

• Tax-sheltered lifetime income

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• Supplemental retirement income

• Asset management, Diversification

• Financial support– Fixed or Variable, for a term or life, of self, family or friends

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METHODSIN CHARITABLE GIFT PLANNING

• We could spend hours talking about each of these gift planning methods and their applications. For today, here is a brief listing to prepare us for the case studies.

• Life Income Plans– One-time transfer of highly appreciated assets with low-

yield immediately prior to retirement or in anticipation of sale of business, real estate or family home

– Use of low-yield CD’s, mandatory retirement plan distributions, or appreciated securities, for older individuals to fund a charitable gift annuity that provides fixed return income

– Retirement Planning -- A series of deferred payment charitable gift annuities, or net income CRT

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• Life Income Plans (continued)– Short-term (10/15, up to 20 years) term of years charitable

remainder trusts to divert income to children/grandchildren, often funded with IRD assets

– Charitable remainder trust funded with partial interest in a highly appreciated real estate, even rental

– Transfer of closely-held C corporation by a majority owner, even to children

– Child or grandchild as remainder beneficiary of a charitable lead trust

– Earnings bailout from a closely-held C corporation

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• Charitable Remainder Trusts– Created by Congress in 1969– An exception to the split-interest rule, for spouses– Often funded with appreciated real estate or stock

during lifetime, or testamentarily with IRD assets– Two forms of CRT’s:

• Annuity trust – pays a fixed amount, no additional contributions

• Unitrust – variable payout, additional contributions, inflationary protection, far more popular

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• Charitable Lead Trusts– Assets transferred to the Trustee of a charitable

lead trust during lifetime or after death. – For a period of years or for someone's lifetime,

either a fixed amount or a fixed percentage of the trust assets are distributed to one or more charities.

– At the end of the trust, the assets are returned to the donor's family, usually children, sometimes grandchildren.

– The value of the charities' interest in the trust is not taxed for either federal gift or estate tax.

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• Beneficiary Designation Gifts– Smart and revocable gift options for all ages– Retirement plan assets which may well be that

individual’s largest asset holding– Retirement plan assets are among the most

expensive for family to inherit due to potentially heavy taxation

– Income tax on retirement plans is simply deferred

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• Beneficiary Designation Gifts (continued)– Consider using for charitable purposes the most

expensive assets family can inherit– Can designate a percentage (not an amount) of

one or more of one or more retirement plan assets to individuals and/or various charities –designations revocable during life

– Retirement plan assets DO NOT pass via a will or trust, but by contract, who is listed on the beneficial designation form on file with the plan holder

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• Beneficiary Designation Gifts (continued)– Gift simple to complete– Can change the beneficiary designation form

anytime by simply completing a new form and sending it back to the company holding the plan

– Even a twenty-one year old can choose this option– Can use one plan, if have multiple plans, as the

source of all testamentary charitable giving

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• Charitable Gift Annuities– Around since the 1831, today the second most

popular charitable gift plan behind bequests– Fixed, guaranteed (as long as charity is solvent)

income for one or two older lives – rates often higher than market rates and CD rates

– A portion of the annual annuity is taxed as tax-free return of investment for the rest of the annuitant's or annuitants' life expectancy

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• Charitable Gift Annuities (continued)– Can produce a higher charitable value for tax

purposes than pooled income funds or charitable remainder unitrusts at the same payout rate

– Ability to defer income to date certain in the future by using deferred payment charitable gift annuities

– Simple, often short contractual agreement; not expensive to establish or for legal review

– Much smaller amount needed to fund a charitable gift annuity than a charitable remainder trust

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• Life Insurance - Policies That Are No Longer Needed, by Gift of Ownership or Beneficial Designation of (Part or All) or (One or More) Life Insurance Policies –donor can fund a wealth replacement strategy for family gifts

• Using Appreciated Stock or Real Estate (often low yield) as Funding Assets

• Gifts of Real Property Subject to Life Estate (for donor and spouse or partner or sibling, and older), of personal residence, vacation home or farm (only)

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CASE STUDY #1

Facts: Younger couple, both age 45 with deferred compensation payout from previous employer that doubles their AGI for that year. Charitable and civically engaged but currently only use monthly checkbook giving.

Options? Lifetime? Testamentary?

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A SOLUTION FOR CASE STUDY #1• Begin with a discernment conversation about

their charitable goals– May not be clearly defined– Beginning now will help guide them as they

progress

• Consider:– Donor-Advised Fund– Gift to charity for the purchase of limited-pay life

insurance policy – Net income only charitable remainder unitrust

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CASE STUDY #2

Facts: Younger doctor couple, both age 55 who are charitable and are fully funding their available retirement plans. Still concerned about giving away assets now since they may need them in retirement.


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A SOLUTION FOR CASE STUDY #2

• Consider a deferred charitable gift annuity• Consider a charitable remainder unitrust, funded

over time and for their lifetimes, to diversify retirement income

• Consider revocable % designations on retirement plan assets now – best way to take care of all charities they care about

• Consider a testamentary CRUT for heirs, funded with IRD assets at survivor’s death

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CASE STUDY #3

Facts: Jack, age 62 visits Gift Planner, announces a $200,000 gift to the charity. She asks him if he’s planning on selling any property anytime soon, his wife has told him to start unloading his many rental properties in DC. The federal capital gains tax rate is then 28% so he’s not acted. The couple also wishes to diversify its holdings in anticipation of retirement and ending their landlord role.


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A SOLUTION FOR CASE STUDY #3• Jack funded a CRUT with his selection of debt-free,

fully depreciated rental real estate, when sold, Jack and spouse had income from an investment portfolio, diversified.

• Jack repeated this technique with other parcels of his rental holdings, tax breaks each time.

• Result: Jack had told Gift Planner he was giving $200,000 but his new goal is $1 million – because she showed him how

• Jack could replace the value of these gifted assets with wealth replacement insurance, to his daughter

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CASE STUDY #4

Facts: Dick, a single man with partner, has a large retirement plan. His first plan is a testamentary CRUT, to pay income to partner and sister after he’s gone, then scholarships. Dick started talking with Gift Planner at age 69, one year prior to mandatory withdrawals from his retirement plan, that he did not then need. He has real estate in Indiana and in Florida.


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• Dick funded a series of deferred CGA’s with his annual mandatory retirement plan distribution, each contract for him and then sister or partner.

• Chose each year whether to fund a CGA or not• Changed his beneficiary designation on his

retirement plan to the testamentary CRUT.• His final gift was a retained life estate of his

residence – valuable income tax deduction• Dick diverted all taxes into the social capital of gifts,

and each plan worked for his goals, during life

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CASE STUDY #5

Facts: Older couple, age 85 with significant stock portfolio, she wanted to gift $1M for medical research but did not want charity to sell her beloved GE stock during her lifetime. The couple had an older home in an established neighborhood, had charitable plans for that too. And, in need of an income tax deduction due to much passive income from investments. The couple had no children or heirs.


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• Couple chose a retained life estate to the local historical society, during life, for a much-needed charitable income tax deduction. Added advantage is that couple could tour the home with the charity and tell the what and why, a very treasured experience.

• After wife died, leaving a $1 million gift to medical research, husband also created a fund at the local community foundation.

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CASE STUDY #6

Facts: Older couple, age 80 with a highly appreciated, debt-free farm, planning to sell most of it for $1.9M to their Parks Dept. for a county park, and retain and live on 20 acres of the farm next to the park. They have written nothing down and their advisors have never done a charitable plan. They have 5 children, she is in poor health. The Park Superintendent initiated the gift planning conversation.


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Four deeds, all pre-tax:1. 2% outright to name Park shelter house2. 15% to local community foundation, to fund a 6%

CGA for life for donor couple3. 30% to a CRUT, their 5 children receiving 5% income

currently for 20 years4. Sold 53% for ParkResult: No capital gains tax on 47%, income tax deductions on that 47%, no CGT on sale of 53%.

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CHARITABLE IRA ROLLOVER –TO BE EXTENDED AGAIN?!

• The Pension Protection Act of 2006 provides an especially attractive option for philanthropically-minded individuals who attain the age of 70 ½ in designated years known as the Charitable IRA Rollover

• Can make an outright gift up to $100,000 of IRA assets to one or more favored charities. A husband and wife can both give that full amount in those years.

• The charity has to be public; gifts to donor advised funds, supporting organizations and private foundations have not qualified for this favorable treatment.

• This distribution must be made directly from the IRA custodian to a public charity

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CHARITABLE IRA ROLLOVER (continued)

• Can count towards even satisfy that plan owner’s mandatory distribution for that year

• No income tax deduction for that gift to charity because that IRA fund balance has never been taxed ,but donor does not have to include the IRA distribution in taxable income, far better than a deduction!!

• Has not yet passed in 2014, has passed the House in a Tax Extenders bill, but has passed the last three times, always retroactively, so act as if has passed, no worse off if does not – and probably will!

• If passes in 2014, may be used by plan owners to ameliorate the impact of a potential 5% income tax on these plans this year, from the ACA surtax and a possible pullback of itemized deductions

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Questions?

Thank you for coming!

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• Charitable Gift Annuity Donor Profiles

• Model Standards of Practice for the Charitable Gift Planner

• Donor Bill of Rights

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EXTRAS (TIME PERMITTING)

CHARITABLE GIFT ANNUITY (FIXED INCOME) DONOR PROFILES

• 65+ year old donors who could afford to make an outright gift, but are concerned about future income needs and want something they can "count on."

• Donors who want a fixed income and like the simplicity of the charitable gift annuity agreement and reporting.

• Donors who want a fixed income but have a modest amount to contribute (not enough for a charitable remainder trust).

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• Donors who want a nominal income they can "count on" and budget for

• Donors who want to name an older individual like a parent or former spouse as the annuitant as a way of providing financial assistance

• Donors who simply want to replace a fixed income (such as income from a Certificate of Deposit) and make a future charitable contribution at the same time.

• Donors who must take mandatory withdrawals of retirement plan assets and use those to fund a charitable gift annuity, immediate or deferred, to offset that income tax inclusion and for income for self and spouse or partner or sibling.

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• Donors who want a simple, understandable plan, with income reported on a familiar 1099

• Donors with low-yield appreciated assets who want higher current income without incurring long-term capital gains taxes in one tax year.

• Donors who want to use one or more deferred payment gift annuities as a source of retirement income and diversification strategy.

• Donors who won’t have a taxable estate and who will benefit from an income tax deduction for funding a CGA during life for self and another.

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MODEL STANDARDS OF PRACTICEFOR THE CHARITABLE GIFT PLANNER

Adopted and subscribed to by the National Committee on Planned Giving (now, Partnership for Philanthropic Planning) and the American Council on Gift Annuities, May 7, 1997. Revised April 1999. Designed to be signed annually by PPP planned giving council members.

I. Primacy of Philanthropic Motivation

II. Explanation of Tax Implications

III. Full Disclosure

IV. Compensation

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V. Competence and Professionalism

VI. Consultation with Charities

VII. Description and Representation of Gift

VIII. Full Compliance

IX. Public Trust

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MODEL STANDARDS OF PRACTICEFOR THE CHARITABLE GIFT PLANNER

The Donor Bill of Rights

Philanthropy is based on voluntary action for the common good. It is a tradition of giving and sharing that is primary to the quality of life. To ensure that philanthropy merits the respect and trust of the general public, and that donors and prospective donors can have full confidence in the nonprofit organizations and causes they are asked to support, we declare that all donors have these rights:

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I. To be informed of the organization's mission, of the way the organization intends to use donated resources, and of its capacity to use donations effectively for their intended purposes.

II. To be informed of the identity of those serving on the organization's governing board, and to expect the board to exercise prudent judgment in its stewardship responsibilities.

III. To have access to the organization's most recent financial statements.

IV. To be assured their gifts will be used for the purposes for which they were given.

V. To receive appropriate acknowledgement and recognition. 38


VI. To be assured that information about their donation is handled with respect and with confidentiality to the extent provided by law.

VII. To expect that all relationships with individuals representing organizations of interest to the donor will be professional in nature.

VIII. To be informed whether those seeking donations are volunteers, employees of the organization or hired solicitors.

IX. To have the opportunity for their names to be deleted from mailing lists that an organization may intend to share.

X. To feel free to ask questions when making a donation and to receive prompt, truthful and forthright answers.

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CASE STUDIES IN GIFT PLANNING THROUGH LIFE STAGES – PRAGMATIC

GIFT OPTIONS FOR YOUR CLIENTS


Thank you for coming!


2014 annual professional advisor continuing education event

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